Louisville Medical Center, KY Rating Outlook Revised To Stable From Negative On Revised Weakest Link

CHICAGO (S&P Global Ratings) Feb. 1, 2019--S&P Global Ratings revised its 
outlook to stable from negative and affirmed its 'BBB+' long-term rating on 
Louisville & Jefferson County Metro Government, Ky.'s debt outstanding, issued 
for Louisville Medical Center (LMC), which is the name of the entity that 
supplies steam and chilled water to several users on the Medical Center 

The bonds are supported by a pool of revenue streams sourced from user 
institutions that contract for a share of the steam and water from the steam 
and water plant (the plant) that Louisville Medical Center produces. The bonds 
are rated under a 'weak link' structure, and the rating reflects the credit 
quality of the weakest institution in the pool.

"The revised outlook reflects underlying changes in the entities participating 
in the pool," said S&P Global Ratings credit analyst Allison Bretz.

The negative outlook, assigned at the time of our last report, reflected our 
view that the lowest-rated member of the pool could change following the 
deconsolidation of the University of Louisville Hospital (ULH) from Catholic 
Health Initiatives (CHI). The rating is driven by the weakest rated member of 
the user pool, as the bonds are secured by multiple revenue streams. We have 
completed our analysis, and determined that the weakest member of the pool is 
now ULH, which is now an independent user of the LMC steam and water plant. 
While we do not have a public rating on ULH, we have produced an internal 
assessment, based on discussions with management and our evaluation of 
financial and enterprise data. Based on this process, we have reached an 
internal assessment of bbb+. Our analysis of ULH incorporates the hospital's 
status as the sole academic medical center in the competitive Louisville 
market, with healthy patient volumes and a fully employed medical staff 
consisting entirely of University of Louisville faculty. This is tempered 
somewhat by the hospital's weak, albeit improving, operating performance, as 
well as by capital needs that may require some additional debt over the next 
few years. 

The user contract for the steam and water plant is between Louisville Medical 
Center (the general manager) and five primary users:

  • University of Louisville ('A+');
  • Kentucky Community & Technical Colleges System (unrated);
  • University of Louisville Hospital (unrated; internal assessment bbb+);
  • Norton Healthcare ('A-'); and
  • KentuckyOne Health ('BBB+', as a part of CHI).
We do not currently maintain a rating on the Kentucky Community & Technical 
Colleges System, but we have determined its credit quality to be sufficiently 
strong such that it is not the weak link in the pool.

The stable outlook reflects our expectation that the internal assessment of 
ULH will not change over the two-year outlook period. We expect to monitor 
this assessment on a regular basis as long as it remains the weakest member of 
the pool. 

We could consider a lower rating if any of the members of the pool 
deteriorates in credit quality such that it is rated below 'BBB+'. 

We would raise the rating on LMC if we positively revise our assessment of 
ULH, assuming it remains the weakest member of the pool.
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