S&P: Charlotte-Mecklenburg Hospital Authority, NC's 2016A Tax-Exempt Refunding Revenue Bonds Rated 'AA-'
S&P Global also affirmed its 'AA-' long-term ratings and underlying ratings (SPURs) on the authority's outstanding bonds, and affirmed its 'A-1+' short-term rating on the authority's series 2015B taxable health care commercial paper (CP) revenue bonds program. The authority, directly and through its affiliates, does business as Carolinas HealthCare System (CHS or the system). The outlook is stable.
The 'A-1+ short-term rating reflects our opinion of CHS' general credit strengths and liquidity support. CHS has identified about $534.5 million of investment assets as of Aug. 31, 2016, to guarantee the full and timely purchase price of the CP program for which CHS has arranged to provide self-liquidity. The assets invested in highly rated money market funds, treasuries, agencies and investment-grade debt provides sufficient coverage in the event of a failed remarketing. Management has established clear and detailed procedures to ensure the ongoing maintenance of sufficient asset coverage and to meet liquidity demands on a timely basis. S&P Global will monitor the liquidity and sufficiency of assets pledged by Charlotte-Mecklenburg Hospital Authority on a monthly basis.
"Management's initiatives to enhance operating profitability following soft results in fiscal 2013 were successful, producing a solid margin and debt service coverage in fiscal 2015 through the first half of fiscal 2016 ended June 30," said S&P Global Ratings analyst Charlene Butterfield. "Margins, coverage, and balance sheet metrics have remained healthy compared with 'AA-' medians, in our opinion." The overall balance sheet remained healthy for the rating, driven by strong operating cash flow. "CHS' strong enterprise profile, highlighted by increasing market share and considerable geographic reach, continue to support the rating," added Ms. Butterfield. "We expect the enterprise profile to remain strong, and anticipate continued solid operating results and balance sheet growth during the next year or two."
The stable outlook reflects our assessment of management's successful restoration of profitability in 2014 continuing in 2015, and our expectation that solid margins will continue during the next one to two years, consistent with relevant medians. In addition, the stable outlook reflects our opinion of CHS's healthy balance sheet metrics and our expectation that the balance sheet will strengthen further during the next one to two years.
We could revise the outlook to positive during the next two years if CHS sustains financial metrics at a level commensurate with a higher rating, and produces substantial growth in unrestricted reserves compared with debt and days' cash on hand.
Given the recent improvement in the financial profile, we do not expect to lower the rating in the next one to two years, but we could revise the outlook to negative if the operating margin decreases to a negative level or if balance sheet metrics decline sharply.