S&P: Yale New Haven Health Obligated Group, CT's Bond Rating Raised To 'AA-' On Stronger Enterprise Profile
We also raised our long-term ratings to 'AA-' on outstanding debt issued by the authority on behalf of Yale-New Haven Hospital (YNHH), which is part of YNHHOG and raised our dual ratings on the series O based on letters of credit (LOCs) and YNHHOG's credit strength to AAA/A-1+. We affirmed our existing 'AA+/A-1' ratings on the series C and D bonds. We based our long-term 'AA+' and 'AAA' rating jointly on the rating on the obligor YNHHOG and the LOC provider assuming low correlation. We based our short-term rating solely on the rating on the various banks providing the LOCs. The outlook on these ratings in stable.
The higher rating reflects our opinion of further strengthening of the organization's enterprise profile with geographic diversity provided by the Lawrence + Memorial (L+M) acquisition coupled with steady improvement in liquidity measures and debt service coverage. We believe YNHHOG's demonstrates strong financial and enterprise profiles, characterized by its broad strength along Connecticut's southern tier with growing volumes, a solid and growing medical staff, and the role of YNHH as one of the country's leading teaching academic medical centers via its close affiliation with the Yale University School of Medicine. YNHH has a national reputation for providing high-quality tertiary services and has very strong demand for its services. Risks to the rating remain in terms of the system's ability to offset continuing reimbursement reductions, success of integrating the L+M operations into the system and improve operations at those facilities, some increased capital spending in the next few years which could strain the balance sheet if cash flow is not as projected.
The stable outlook reflects a strong enterprise profile and sustained financial improvements, highlighted by improved DSC and unrestricted cash and investment metrics, and further extension of YNHHSC's brand within its service area in the eastern portion of Connecticut and into Rhode Island.
A higher rating is not likely in the outlook period given the recent upgrade, certain liquidity measures such as days' cash on hand that remain below median levels, and a challenging reimbursement environment. Any further positive rating movement would be predicated on significant balance sheet improvements and margins and coverage more in line with a higher rating.
A negative outlook or lower rating would be possible if there was a very large increase in debt, reduction of liquidity, or sharply weaker financial performance and debt service coverage. Failure to successfully integrate L+M (or any future acquisitions) into the system could also pressure the rating.