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Southcoast Health System, MA -- Moody's assigns Baa1 to Southcoast Health System's (MA) Ser. G; outlook stable

·12 min read

Rating Action: Moody's assigns Baa1 to Southcoast Health System's (MA) Ser. G; outlook stable

Global Credit Research - 22 Dec 2020

New York, December 22, 2020 -- Moody's Investors Service has assigned a Baa1 to Southcoast Health System's (MA) proposed $100 million Southcoast Health System Obligated Group Issue, Series G (2021) bonds. The bonds will be issued by the Massachusetts Development Finance Agency and are expected to have a final maturity in 2050. At this time we also affirm our Baa1 on approximately $130 million of debt outstanding. The outlook is stable.

RATINGS RATIONALE

Assignment and affirmation of the Baa1 reflects our expectation that Southcoast will generate modest, but stable cash flow margins over the near term that will allow it to fund routine capital expenditures and maintain good balance sheet measures. The system will benefit from its strong market share as it works integrate more closely with local physician groups across a range of service lines and reduce outmigration to Boston.

The most significant current social risk under our ESG framework is COVID-19, which continues to pressure volumes and operations. Like most health systems, Southcoast halted elective procedures in March. Despite receiving material federal and state financial support and reopening elective services in late spring and seeing significantly increased volumes, operations have remained impacted and not all volumes have recovered to 100% of prior year levels. There remains a high degree of uncertainty around the potential long-term impact of COVID-19, its effect on the economy, and the duration of its impact on Southcoast's profitability.

RATING OUTLOOK

The stable outlook reflects the expectation that Southcoast will meet budget in fiscal 2021, generating a modest cash flow margin that will allow it to fund routine capital spending and maintain its days cash position.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Stronger cash flow margins over a multi-year period

- Ability to grow cash reserves and days cash, while funding necessary capital investments

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Inability to maintain operating performance at approximately current levels

- Return to sizeable operating losses or weak cash flow

- Material additional debt or reduction in liquidity

LEGAL SECURITY

The bonds are secured by a joint and several gross receipts pledge of the obligated group which consists of the Hospitals Group, the Parent, Southcoast Physicians Group, Inc. and the Southcoast Visiting Nurse Association. These entities represent over 90% of system revenues and assets. A mortgage pledge is in place except for the main campus of Tobey Hospital. Unless otherwise indicated, all financial indicators reflect system results.

Southcoast will implement a new MTI with the Series G offering. The new MTI brings covenants and events of default more in line with current market practices and weakens bondholder protections. The debt service coverage test will be changed to under 1.1x, but above 1.0x will require a consultant call in. Below 1.0x for two consecutive years is an event of default. The days cash on hand test will be removed.

USE OF PROCEEDS

Bonds will be used to refinance the Series D bonds, provide $25 million in reimbursement, fund capital expenditures and pay the costs of issuance.

PROFILE

Southcoast is a community hospital system, operating three hospitals, several ambulatory sites, and numerous physician offices throughout its market in southeastern Massachusetts.

METHODOLOGY

The 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 DISCLOSURES

For 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.

Daniel Steingart 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 Eugene Spielman 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

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