OREANDA-NEWS. S&P Global Ratings assigned its 'A+' long-term rating to the Deschutes County Hospital Facility Authority, Ore.'s series $104.12 million 2016A tax exempt hospital revenue bonds and the $7.0 million 2016B taxable hospital revenue bonds, issued for St. Charles Health System, Inc. (SCHS). The outlook is stable.

"The 'A+' rating reflects application of our U. S. Not-For-Profit Acute-Care Stand-Alone Hospital criteria, published on Dec. 15, 2014," said S&P Global Ratings analyst Martin Arrick. While SCHS is a four-hospital system based in Bend, Ore. with many system-like attributes, it remains classified by S&P Global as a standalone provider based on the size of its overall net patient revenues.

"The rating reflects our opinion of SCHS's strong enterprise profile and very strong financial profile," added Mr. Arrick. Our view of SCHS's strong enterprise profile reflects an excellent business position as evidenced by a sizable array of service offerings and locations, as well as overwhelming market share, combined with utilization and population growth and a sound regional economy centered in Bend, Oregon. Our view of SCHS's very strong financial profile reflects robust debt service coverage and financial operations, combined with a sound balance sheet and track record of sound capital spending, although a dip in operating income is expected over the next two years due to an electronic medical record implementation.

Bonds are secured by a gross revenue pledge of the obligated group, which includes 98% of operating revenues and virtually all total assets after eliminations. The obligated group includes the parent company and four hospitals located in and around Bend. Nonobligated entities include a foundation and a series of joint ventures with independent physicians. The flagship is St. Charles Bend hospital with 256 licensed beds. The three other hospitals are located in Redmond, Madras, and Prineville, Ore., and they have 48, 25, and 16 licensed beds, respectively.

The stable outlook reflects SCHS's sound enterprise and financial profiles. Overall competition is very limited and the current project aims to retain even a larger share of regional business. While our expectation is that financial margins are likely to be somewhat slimmer, given broad industry trends and an on-going electronic medical record implementation through late 2018, the overall strength of the enterprise profile including solid population growth should support the current rating for an extend time horizon.

A lower rating or negative outlook would be possible over the two-year outlook period if unexpected operational issues emerged. While this is not expected, a sharp decline in unrestricted reserves by over 20% or MADS coverage consistently dipping to under 4x would be negative triggers.

A higher rating is unlikely given the overall size of SCHS and current levels of unrestricted reserves to debt. However, a substantial improvement in balance sheet strength combined with improvement in MADS coverage to consistently over 7x would be viewed favorably.