Louisville Medical Center Laundry, KY 2012 Bond Outlook Revised To Stable From Negative On New Weak Link Participant

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 $3 million series 2012 
fixed-rate laundry revenue refunding bonds issued for Louisville Medical 
Center Laundry (LMC Laundry). 

The bonds are supported by a pool of revenue streams from user institutions 
that use a share of the laundry services provided by Louisville Medical 
Center. The rating reflects the credit quality of the weakest institution in 
the pool. 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.

Historically, the rating on LMC Laundry has been driven by the weakest rated 
member of the pool, as the bonds are secured by multiple revenue streams. 
Currently, the weakest member of the pool is the University of Louisville 
Hospital (ULH), which is now an independent user of the LMC steam and water 
plant following its deconsolidation from Catholic Health Initiatives (CHI). 
While we do not have a public rating on ULH, its implied assessment, based on 
discussions with management and our evaluation of financial and enterprise 
data, is bbb+/stable. 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 sound medical staff. 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 laundry is between Louisville Medical Center (the 
general manager) and three primary users:

  • University of Louisville Hospital (unrated; assessed at bbb+/stable);
  • Norton Healthcare ('A-'); and
  • KentuckyOne Health ('BBB+', as a part of CHI).
The BBB+' rating reflects our long-term rating on CHI, which is currently the 
lowest-rated member of the pool. 

The stable outlook reflects our current view of the internal assessment of 
ULH. 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 the credit quality of any of the members 
of the pool deteriorates to a level below BBB+/Stable. 

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