Fitch Places Mountain States Health Alliance (TN) Revs on Rating Watch Evolving
SECURITY
Bonds are secured by pledged assets and a mortgage on Johnson City Medical Center and Sycamore Shoals Hospital. In addition, there is a debt service reserve fund on certain series of debt.
KEY RATING DRIVERS
MERGER ANNOUNCEMENT: Fitch has placed MSHA's 'BBB+' rating on rating watch evolving due the announcement that MSHA and Wellmont (general revenue bonds rated 'BBB+') have signed an agreement to explore a merger. The announcement states that the two organizations are exploring a plan to combine assets and operations to form a new integrated health care system that will include a combined board.
UNDERTAKING DUE DILIGENCE: The organizations plan to enter a period of due diligence, which is expected to conclude by July or August of 2015, and then submit a Certificate of Public Advantage to the Tennessee and a similar application to Virginia by the end of August seeking approval of a merger. Fitch will take rating action at the appropriate time as the process unfolds and clarifying details emerge on the new health system.
RECENT RATING AFFIRMATION: For more information on MSHA see Fitch's press release 'Fitch Affirms Mountain States Health Alliance (TN) Revs at 'BBB+'; Outlook Stable' dated Feb. 11, 2015.
RATING SENSITIVITIES
COMPLETION OF PENDING TRANSACTION: Resolution of the rating watch will be tied to the completion of the pending transaction and the treatment of MSHA's debt post-transaction.
CREDIT PROFILE
Headquartered in Johnson City, Tennessee, MSHA was formed in 1998 from the acquisition of six hospitals in Tennessee from Columbia/HCA and has grown into a large regional health care system with 13 hospitals (1,671 licensed beds) and other related entities, primarily serving northeast Tennessee and southwest Virginia. MSHA has a membership interest (ranging from 50.1%-80%) in three of the hospitals in the system (Smyth County Community Hospital, Norton Community Hospital, Johnston Memorial Hospital). In fiscal 2014 (June 30 year end), MSHA had total operating revenue of \$1 billion.
RATED DEBT
--\$55,000,000 hospital revenue bonds (Mountain States Health Alliance) series 2012A;
--\$5,415,000 hospital revenue bonds series 2009A;
--\$167,730,000 hospital first mortgage revenue bonds series 2006A;
--\$20,400,000 hospital first mortgage revenue bonds series 2001A;
--\$34,645,000 hospital first mortgage revenue refunding bonds series 2000A;
--\$30,750,000 hospital first mortgage revenue bonds series 2000C.
In addition, Fitch places the 'BBB+' rating on the following parity debt issued on behalf of MSHA on Rating Watch Evolving:
--\$5,400,000 Industrial Development Authority of Smyth County hospital revenue bonds series 2009B;
--\$111,265,000 Industrial Development Authority of Washington County Virginia, hospital revenue bonds series 2009C;
--\$13,245,000 Mountain States Health Alliance taxable note series 2000D.
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