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Shands Teaching Hospital and Clinics, Inc. -- Moody's affirms Shands Teaching Hospital and Clinics, Inc.'s (FL) A3 rating; outlook stable

·14 min read

Rating Action: Moody's affirms Shands Teaching Hospital and Clinics, Inc.'s (FL) A3 rating; outlook stableGlobal Credit Research - 22 Feb 2021New York, February 22, 2021 -- Moody's Investors Service has affirmed the A3 ratings of Shands Teaching Hospital and Clinics, Inc. (Shands) (FL). The outlook is stable. This action affects approximately $841 million of rated debt.RATINGS RATIONALEMoody's affirmation of Shands' A3 rating reflects its role as the academic medical center for the University of Florida College of Medicine, which will support Shands' strong brand and enterprise growth. Shands' alignment with the University will continue to serve as an underlying credit strength. Shands' tertiary and quaternary service offerings will help support ongoing demand and volume growth, aided by additional bed capacity along with new regional affiliations. As Shands continues to see recovery amid the pandemic, higher acuity admissions will help offset lower than budgeted volume trends. While the system will continue to face for-profit competition in Gainesville, Shands' regional draw will be an offset. Future operating cash flow margins, while muted in fiscal 2020 largely because of the elective suspension, will likely exceed fiscal 2019's levels, while better days cash (excluding Medicare advances) will likely be maintained. Shands' recent strategic expansion initiatives, highlighted by its January 2020 acquisition of Central Florida Health, Inc. (CFH), will provide a presence in high growth markets but will also add challenges due to strong competition and additional capital investments. Capital spend will likely return to elevated levels and require incremental debt as Shands pursues projects in new markets. This will further constrain Shands' ability to reduce leverage, which is relatively high, as measured by cash to debt, debt to cash flow and coverage. In addition, Shands will face some uncertainty due to relatively high reliance on state supplemental funding and 340B program benefits.RATING OUTLOOKThe stable outlook reflects Moody's expectation that fiscal 2021 operating cash flow margins will likely exceed fiscal 2019's levels even as Shands continues its recovery. Further, improved days cash will likely remain closer to peer levels. This, along with its strong alignment with the University, will help to offset high and likely increasing leverage as indicated by both operating and balance sheet measures.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS-Lower leverage as measured by both operating and balance sheet measures including debt to cash flow and cash to debt-Improved and sustained operating cash flow margins-Meaningful growth in days cash and absolute cash levels-Expansion strategies that are accretive to and support improved financial performanceFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS-Inability to return to and sustain at a minimum fiscal 2019 operating cash flow margins-Reduction in absolute or relative cash levels-Leverage rising above currently high levels-Ongoing expansion strategies that would result in weaker margins or balance sheet metrics-Change in the relationship with the University of FloridaLEGAL SECURITYShands Teaching Hospital and Clinics, Inc. is the only member of the obligated group and includes UF Health Shands Hospital, the primary teaching hospital for the University of Florida; UF Health Shands Psychiatric Hospital and UF Health Shands HomeCare. Bonds are secured by a pledge of gross revenues of the obligated group; and a negative mortgage lien. All outstanding debt, including private placement debt, is parity. Shands does not guarantee CFH's debt, which is secured by its own obligated group.PROFILEShands Teaching Hospital and Clinics, Inc., (d/b/a UF Health Shands Hospital) is a 1,014-bed academic medical center and serves as the primary teaching site for the University of Florida's College of Medicine. Shands' flagship hospital is located in Gainesville, Florida on the University of Florida campus. The medical center provides tertiary and quaternary services including Level I trauma care, Level III neonatal intensive care, organ transplants, and burn care. In January 2020, Shands acquired CFH, a two-hospital system located in Lake and Sumter Counties.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 DISCLOSURESFor 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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website 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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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. Diana Lee Lead Analyst PF Healthcare Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Daniel Steingart Additional Contact PF Healthcare JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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