OREANDA-NEWS. S&P Global Ratings assigned its 'AA-' rating to North Carolina Medical Care Commission's series 2016 and 2017 bonds issued for Mission Health Inc.

At the same time, we affirmed our 'AA-' rating on Mission Health's existing debt issued by the Commission and the hospital on its own behalf. S&P Global also affirmed its 'AA-/A-1' rating on the commission's series 2003 variable-rate demand bonds, also issued for Mission Health. The outlook on all issues is stable. The short-term component of the rating on the series 2003 bonds reflects an enhancement in the form of a standby bond purchase agreement from BB&T Corp.

"The rating reflects our view of Mission Health's solid balance sheet, stable business position, and pro forma maximum annual debt service coverage that is sufficient for the rating," said S&P Global Ratings analyst Jessica Goldman. Through the nine-month interim period, the organization faced some operating challenges but has offset them with improvement efforts posting an operating gain ahead of budget. Management continues to focus on re-engineering clinical practices and operations to achieve efficiencies, physician recruitment, and cost-reduction initiatives. We believe Mission's campus consolidation plan, with significant spending in fiscal years 2016 through 2018, will be manageable at the current rating level if Mission can sustain operating performance and cash flow as we expect.

The stable outlook reflects our expectation that Mission will maintain profitable operations due to its cost-containment initiatives and revenue growth opportunities generating coverage in line with the rating. Based on management's forecast, which we believe uses reasonable assumptions, operating income and DSC will remain in line with medians in fiscal 2016 and until the project opens, and unrestricted reserves, which spiked in fiscal 2013 due to bond proceeds, will decline as proceeds and internal cash are used for major construction. We believe the rating and outlook could remain stable over the one - to two-year outlook period if Mission remains reasonably close to projections on most measures but we believe there is limited flexibility at the rating level.

A negative outlook or lower rating is possible if there is a significant variance to similarly rated hospitals with unrestricted reserves relative to debt, days' cash or margins not sufficient to allow for the draw-down of additional debt in the next couple of years. There would also be rating pressure if there was significant change in the competitive landscape that leads to deterioration of business position, or a sizable dilutive acquisition.

We believe upward rating potential is limited in the outlook period given the potential for additional debt and absorption of the significant campus project. However, significant improvement in margins or balance sheet metrics to a level in line with a higher rating could lead to a positive rating action.