West Virginia University Health System Series 2018 Bonds Rated #A# On Strong Enterprise Outlook Is Stable

Stocks and Financial Services Press Releases Wednesday June 13, 2018 09:11
NEW YORK--13 Jun--S&P Global Ratings

NEW YORK (S&P Global Ratings) June 12, 2018--S&P Global Ratings has assigned its 'A' long-term rating to West Virginia Hospital Finance Authority's series 2018 bonds, issued for West Virginia United Health System's (WVUHS) obligated group (doing business as West Virginia University Health System, as obligated group agent). WVUHS has branded its clinical activities under the name of WVU Medicine. S&P Global Ratings also affirmed its existing long-term rating and underlying rating (SPUR) on WVUHS' various debt issues. The outlook is stable.

"The rating reflects our opinion of the organization's strong enterprise profile with a good business position, relatively stable operating results over the past several years, and adequate balance sheet in line with the rating," said S&P Global Ratings credit analyst Stephen Infranco.

The operating performance softened in fiscal 2017, but results were still positive and $8.2 million better than budgeted. While volumes and revenue growth were favorable, management indicates expenses were above budget by approximately 4% due to professional services and contract labor costs, increased supply costs, and growing physician support costs as the system added 179 net new physicians over the past two years. While we expect that fiscal 2018 performance could remain modest, with a relatively breakeven budget, the first four-month results ended April 30, 2018 are favorable with a 2.7% operating margin.

WVUHS is the largest health care system in the state, consisting of an academic medical center, four community hospitals, and three critical access hospitals with a combined 1,625 licensed beds.

The stable outlook reflects our opinion that WVUHS will likely continue to earn adequate operating income over the outlook period and will benefit from incremental revenue growth and profitability of the recently completed projects and expansion coming on line. In addition, WVUHS' focus on key service line development and increasing business volume could contribute to some gradual growth in market share over time.

We could lower the rating if financial metrics weaken, including a less-than-1% operating margin (including transfers), decreasing days' cash on hand, or the unrestricted-reserves-to-long-term-debt ratio declining to levels more reflective of lower rated medians. We do not foresee any threats to WVUHS' strong business position over the outlook's two-year period. A dilutive acquisition, however, could result in a lower rating if the financial effect on the system were dramatic and if strategic benefits were unclear.

While unlikely over the outlook period due to the additional debt, we could raise the rating if WVUHS implements its capital plan and if it achieves financial metrics consistent with those of a higher rating category. In particular, we would look for WVUHS' high debt load to decrease, including leverage and debt burden, while it increases unrestricted reserves to debt and debt service coverage consistently to levels typical of a higher-rated system.

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 S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

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