Rating Action: Moody's assigns Baa2 to Westchester County Health Care Corporation's (NY) Ser. 2020; outlook negative
Global Credit Research - 14 Aug 2020
New York, August 14, 2020 -- Moody's Investors Service assigned a Baa2 to Westchester County Health Care Corporation's (WCHCC) (NY) proposed Revenue Bonds, Series 2020 (Taxable) (Westchester Medical Center Obligated Group Project), expected to be issued in the amount of $300 million through the Westchester County Local Development Corporation. The bonds are expected to be insured by Assured Guaranty. Moody's concurrently affirmed the Baa2 ratings for Westchester County Health Care Corporation and Charity Health System (NY), affecting approximately $764 million of outstanding debt. The outlook is negative.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM906642297 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.
Affirmation and assignment of Westchester County Health Care Corp.'s (WCHCC) Baa2 reflects an expectation that significant federal relief funds and bank line draws will provide liquidity and substantially offset material losses from COVID, a social consideration under Moody's ESG framework. Temporarily elevated liquidity will be sufficient to pay off all bank lines and still be above FYE 2019 levels. Incremental capacity from a new ambulatory care pavilion and WCHCC's market position as a large, essential enterprise will drive a resumption of pre-COVID volume growth, as shown by early indications of a relatively strong recovery from COVID. These developments will materially reduce the risk of a covenant breach this year. Nevertheless, margin improvement could stall if there are Medicaid cuts or another outbreak. Additionally, there is uncertainty around the timing of Medicare advance repayments and large Medicaid disproportionate share payments. These developments will determine the level of steady state liquidity, which will be an important credit driver given the system's thin pre-COVID liquidity and high leverage.
Charity Health System's (CHS) Baa2 affirmation and negative outlook are based on WCHCC's legal guarantee to pay debt service on CHS's Series 2015 bonds, if CHS is unable. References to "Consolidated system" or "system" reflect combined WCHCC and CHS.
The negative outlook reflects the risk that Medicaid cuts or a slowdown in recovery could impair cashflow improvement. In addition, the steady state liquidity position is unclear given uncertainty around the timing of large repayments of Medicare advances and receipt of Medicaid disproportionate share payments. Post-COVID cashflow and liquidity will be key credit drivers given the system's thin pre-COVID liquidity and high operating and balance sheet leverage.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Material and sustained growth in liquidity
- Maintained higher operating cashflow margins for the consolidated system including CHS
- Measurable improvement in operating and balance sheet leverage metrics
- Demonstrated financial support from Westchester County
- For Charity Health System, upgrade of Westchester County Health Care Corp.
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Decline in days cash on hand or cash-to-debt from FYE19 levels
- Decline in margins or inability to absorb Medicaid cuts
- Increase in leverage, including lease or vendor financings or meaningful increase in pension contributions
- Prolonged recovery from or significant resurgence of COVID
- Covenant breach that increases acceleration risk
- For Charity Health System, downgrade of Westchester County Health Care Corp.
The obligated group consists of Westchester County Health Care Corporation, which includes the Westchester Medical Center Valhalla and MidHudson campuses. The obligated group does not include HealthAlliance, CHS and certain other subsidiaries of WCHCC. The bonds are secured by a pledge of gross receipts of the obligated group and mortgages of certain property. The mortgages consist of leasehold interests in the Valhalla and MidHudson campuses.
WCHCC provides an irrevocable and unconditional guaranty covering full and timely payment of all scheduled payments of principal and interest on CHS's bonds. The guarantee is evidenced through a supplemental indenture to WCHCC's master trust indenture, putting CHS's bonds on parity with WCHCC's other MTI obligations. While the guarantee does not extend to accelerated bonds, the indenture does not allow for acceleration of principal and interest on CHS's bonds. Additionally, CHS's bonds are not subject to mandatory redemptions. CHS's bonds are secured by gross receivables of the obligated group, which includes the hospitals only and excludes physician-related entities.
USE OF PROCEEDS
Proceeds from the Series 2020 bonds will be used for general corporate purposes and to refund certain outstanding bonds.
The Westchester County Health Care Corporation (WCHCC) is a New York Public Benefit Corporation. The main campus is located in suburban Westchester County, New York and is leased from Westchester County. The major facilities with 872 beds include the main hospital in Valhalla, the Behavioral Health Center at Westchester, the Maria Fareri Childrens Hospital on the Valhalla Campus and the MidHudson Regional Hospital in Poughkeepsie, NY. Effective March 30, 2016 WCHCC entered into an affiliation agreement with HealthAlliance (270 staffed beds) and WMC-Ulster, in which WMC-Ulster became the sole member of HealthAlliance. On October 21, 2019, WCHCC became the sole member of HealthAlliance.
CHS is comprised of Good Samaritan Hospital in Suffern, N.Y., Bon Secours Community Hospital in Port Jervis, and St. Anthony Community Hospital in Warwick (total 361 staffed beds), as well as a long term care facility and an assisted living facility and a large number of employed physicians.
The principal methodology used in the Westchester County Health Care Corporation, NY ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. The principal methodology used in the Charity Health System, NY ratings was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1068154. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
The List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM906642297 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:
- EU Endorsement
- Disclosure to Rated Entity
- Solicitation and Participation
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_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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.
Lisa Martin 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 Beth Wexler 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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