Rating Action: Moody's assigns A2 to University of Pittsburgh Medical Center, PA's Ser. 2021A,B, & C; outlook stableGlobal Credit Research - 17 Mar 2021New York, March 17, 2021 -- Moody's Investors Service has assigned an A2 to University of Pittsburgh Medical Center, PA's (UPMC) proposed $230 million UPMC Revenue Bonds, Series 2021A to be issued through the Pennsylvania Economic Development Financing Authority and $50 million UPMC Revenue Bonds, Series 2021B (Forward Delivery) to be issued through the Allegheny County Hospital Development Authority. The 2021A & 2021B are expected to be issued as tax exempt fixed rate bonds. In addition, Moody's assigned an A2 to UPMC's $400 million Taxable Revenue Notes, Series 2021C which is expected to be privately placed. Concurrently, Moody's affirmed the A2 on the bonds and notes of UPMC and Pinnacle Health System (PHS), which are parity obligations under UPMC's indenture. The outlook for both UPMC and PHS is stable. The actions affect approximately $4.6 billion of debt.Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM907036548 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.RATINGS RATIONALEAffirmation and assignment of the A2 reflects Moody's expectation that UPMC's strong, diversified market position with a broad geographic footprint, excellent reputation, substantial facilities investments, and growth of health insurance membership will support ongoing recovery from pandemic related disruptions. In addition, upcoming investments in various service lines and growing clinical capabilities in the broader region will provide opportunities for market share gains. Margins in FY 2021 will be supported by cost controls, benefits of diversified enterprise operations, and already received CARES grants, but recovery from the winter surge and staffing challenges will weigh on margins. High capital spending over the next several years and the repayment of Medicare advances will reduce liquidity from currently higher than normal levels, but Moody's expects days cash to remain consistent with pre-pandemic levels - which will provide modest resources for operations given the scale of the System. Operating and balance sheet leverage will remain high, but debt structure risk will remain manageable and availability of lines of credit will provide for some flexibility. Management's demonstrated ability to address operating challenges will continue to undergird pandemic recovery and well-developed integration competencies will reduce risks of future acquisitions or mergers. UPMC's alignment with the University of Pittsburgh will support recruitment of top clinicians and overall brand enhancement. However, competition will increase in virtually all Pennsylvania markets because large and financially strong healthcare systems are extending their geographic reach through acquisitions or new construction.RATING OUTLOOKThe stable outlook reflects Moody's expectation that UPMC will not raise leverage beyond current forecasts, and that liquidity and leverage metrics will not weaken, excluding repayment of Medicare advanced funds and expected capital investment. The outlook also assumes that margins will continue to strengthen from 2019 levels, albeit at slower levels than previously anticipated due to the pandemic's impact on volume recovery and staffing costs.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Material, sustained improvement in margins- Significant strengthening of operating and balance sheet leverage metrics- Notably stronger liquidity metricsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Sustained decline in consolidated enterprise margins or a rise of the insurance plan's medical costs that dampens the system's ability to strengthen margins- Reduction in absolute cash or days cash, excluding Medicare advances, which suggests a permanent departure from historic levels- Materially dilutive acquisition or merger or debt-financed strategy- Unexpected high level of operating disruption associated with the pandemic or much more severe downturn in the economyLEGAL SECURITYUPMC's parity debt is a joint and several commitment of the obligated group secured by a lien on gross revenues. The Obligated Group under the 2007 Master Trust Indenture consists of the Parent Corporation, UPMC Presbyterian Shadyside Hospital, UPMC Magee Womens Hospital, UPMC Passavant and UPMC St. Margaret. The system also includes several additional hospitals throughout western Pennsylvania, international operations and a variety of insurance subsidiaries as part of its integrated delivery and financing system. The Insurance Division, which is not in the OG, accounts for approximately 48% of system operating revenues (before eliminations).USE OF PROCEEDSSeries 2021A,B&C proceeds will be used to refund certain outstanding obligations of UPMC, pay the costs of the construction, acquisition and installation of various capital improvements that constitute healthcare facilities and equipment to be owned and/or operated by UPMC or one of its affiliates, and pay certain costs of issuance.PROFILEUPMC ($23 billion revenue FY 2020) is an integrated delivery and financing system (IDFS) based in Pittsburgh, Pennsylvania, serving residents of western and central Pennsylvania, southwestern New York, and western Maryland. UPMC's 40 hospitals and more than 700 clinical locations comprise the largest health care delivery system in Pennsylvania. UPMC employed more than 4,900 physicians as of December 31, 2020. UPMC is the largest nongovernment employer in the Commonwealth. UPMC also offers a variety of insurance products that cover approximately 4 million lives.METHODOLOGYThe principal methodology used in these ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESThe List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM907036548 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:- Rating Solicitation- Issuer Participation- Participation: Access to Management- Participation: Access to Internal Documents- Disclosure to Rated Entity- EndorsementFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. 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