Sharp HealthCare, CA Bond Ratings Raised To #AA# On Improved Financial And Business Metrics

Stocks and Financial Services Press Releases Tuesday December 12, 2017 11:02
SAN FRANCISCO--12 Dec--S&P Global Ratings

SAN FRANCISCO (S&P Global Ratings) Dec. 11, 2017--S&P Global Ratings raised its long-term ratings and underlying (SPUR) ratings on ABAG Finance Authority for Nonprofit Corps., Calif.'s $372.1 million series 2009B, 2011A, 2012A, and 2014A bonds; $129.3 million series 2009A, 2009C, and 2009D bonds, Sharp HealthCare (Sharp) to 'AA' from 'AA-'. At the same time, S&P Global Ratings raised its long-term rating on California Health Facilities Financing Authority 's $1.9 million series 1988A revenue bonds, also issued for Sharp.

In addition, S&P Global ratings assigned its 'AA' long-term rating to California Public Finance Authority's $146.3 million series 2017A fixed rate revenue bonds issued for Sharp. We also assigned our 'AA+/A-1' dual rating to California Public Finance Authority's $74.5 million series 2017B variable rate revenue bonds, and $74.5 million series 2017C variable rate revenue bonds, both issued for Sharp. On a pro forma basis, Sharp has a total of $825 million of long-term debt outstanding. Under the plan of finance the series 2009B bonds will be refunded on Aug. 1, 2019. The outlook on all relevant series is stable.

We also affirmed our 'AA+/A-1' dual rating on ABAG Finance Authority for Nonprofit Corps.' series 2009A bonds issued for Sharp. The 'AA+' long-term component of the dual rating is based on S&P Global Ratings' joint criteria and our view that there is a low correlation between the letter of credit (LOC) provided by Bank of America N.A. and the SPUR on Sharp. The long-term component of the rating reflects our view that debt service will likely be paid over the life of the issue. The 'A-1' short-term rating component reflects the short-term rating on the LOC enhancement provided by Bank of America, which expires on April 30, 2020.

We also affirmed our 'dual rating' to 'AA+/A-1' on the series 2009C and 2009D bonds issued by ABAG Finance Authority for Nonprofit Corps. on behalf of Sharp. The 'AA+' long-term component of the rating is based on our joint criteria and our view that there is a low correlation between the LOC provided by Citibank N.A. and the SPUR on Sharp. The 'AA+' long-term component of the dual rating reflects our view of the likelihood that debt service will be paid over the life of the issue. The 'A-1' short-term rating component reflects the short-term rating on the LOC enhancement provided by Citibank, which expires on Dec. 1, 2020.

"The upgrade and new ratings reflects our view of Sharp's favorable enterprise profile; integrated delivery model; leading and growing market share in San Diego County; ownership of a profitable, sizable, and well-positioned health plan, combined with maintenance of a very strong balance sheet; and excellent maximum annual debt service coverage despite softer performance in fiscal 2017," said S&P Global Ratings credit analyst Martin Arrick. "We also believe Sharp's successful integrated delivery model and its demonstrated success in managing significant capitated business for both commercial and government insured populations position it well for managing health care reform and functioning in today's complex environment."

The rating also reflects our favorable view of Sharp's strong and stable management team and sound planning process including the recent retirement and replacement of its long-term chief financial officer with an internal promotion.

The stable outlook is based on our opinion of Sharp's strong and sustained enterprise profile, highlighted by leading market share, strength in its sizable capitated business, a strong financial profile including an excellent balance sheet. We also expect on-going stability in the overall operating profile going forward.

Given this upgrade, a further upgrade is not expected within the two-year outlook window. However, sustained improvement to its overall financial profile and continued strengthening of overall market share could lead to a higher rating over time.

A downgrade or negative outlook would be premised on operating margin compression such that coverage consistently dropped below relevant medians without one-time costs or revenues or if unrestricted reserves to debt declined to levels more consistent with 'AA-' medians. Industry wide pressures remain a broad risk to the rating and outlook.

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.


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