S&P: OSF Healthcare System, IL's 2016 Revenue Bonds Rated 'A'; Outlook Positive
S&P Global Ratings also affirmed its 'AA+/A-1+' joint criteria rating on the IFA's series 2009C bonds, its 'AA/A-1' joint criteria rating on the IFA's series 2009B bonds, its 'AA+/A-1' joint criteria rating on the IFA's series 2009D bonds, and its 'AA/A-2' joint criteria rating on the IFA's series 2007E and 2007F bonds.
The outlook remains positive where applicable.
The ratings on the series 2007E, 2007F, 2009B, 2009C, and 2009D bonds are based on the application of our joint criteria, whereby the long-term component of the rating is based on the 'A' SPUR on OSF and on the short-term ratings on various banks providing letters of credit (LOCs). Each series has the benefit of a separate LOC; Barclays Bank PLC (2007E and F), PNC Bank N. A. (2009B), Wells Fargo Bank N. A. (2009C) and JPMorgan Chase Bank, N. A. (2009D), all issued LOCs to back the series 2007E, 2007F, 2009B, 2009C, and 2009D bonds, respectively. The obligation of OSF, as well as the banks' obligations established by the LOCs, to make debt service payments support the joint ratings. The short-term component of the ratings is based solely on the bank ratings.
"The 'A' rating reflects our view of OSF's successful improvement to the organization's operations during the past several years, after a challenging fiscal 2013, in addition to steady growth of unrestricted reserves," said S&P Global Ratings analyst Kevin Holloran. "The stronger balance sheet, improved operations, and management's determined approach to be appropriately prepared for the transition to population health continue to support the positive outlook."
The positive outlook reflects our expectation that OSF's financial performance levels will continue and gradually strengthening the balance sheet. We believe further balance sheet accretions (and debt reduction) are both necessary components to an upgrade, assuming stable operations and coverage levels.
We could expect to raise the rating over the outlook period should OSF continue to generate solid and stable operating margins, such that adjusted maximum annual debt service coverage is consistently above 4x, and unrestricted liquidity levels gradually improve such that unrestricted reserves to debt approaches 130% and leverage is below 50%.
We will revise the outlook back to stable if OSF does not see further improvements in operating income levels or if unrestricted reserves do not appreciate to levels more commensurate with a higher rating. OSF does not currently have debt capacity at a higher rating, should additional debt be issued, this will also likely trigger a revision to a stable outlook.