Adena Health System, OH's Series 2019 Revenue Bonds Assigned 'A-' Rating

CHICAGO (S&P Global Ratings) May 17, 2019--S&P Global Ratings assigned its 'A-' long-term rating to Ross County, Ohio's $87.875 million series 2019 revenue bonds, issued for Adena Health System (Adena). At the same time, S&P Global Ratings affirmed its 'A-' long-term rating on Adena's existing debt. The outlook is stable.
"The rating reflects Adena's volume and revenue growth over the last few years, following a period of stagnation," said S&P Global Ratings credit analyst Allison Bretz. "This growth reflects the management team's focus on developing Adena as a regional referral center by strengthening its brand, growing its medical staff, and expanding its local and regional partnerships."
Adena's operating performance has improved over the last few years, although its operating margin was somewhat lower in fiscal 2018 as management made significant investment in growing the system's medical staff. Still, management has implemented a number of successful cost-savings initiatives, and we believe operations will improve in fiscal 2019 and beyond. Adena's pro forma balance sheet is adequate for the rating, and we believe stable operations should generate ample cash flow to support modest improvement in reserves over time, even as the system continues to invest in capital improvements.
The stable outlook reflects our view that Adena will maintain or improve its current financial profile, supported by management's ongoing focus on growing revenue and controlling expenses. The outlook also reflects our view that Adena can sustain the additional debt associated with the series 2019 issuance, and will continue to generate ample cash flow to grow its liquidity over time.
The series 2019 bonds total approximately $98.962 million, inclusive of par and premium. The issuance includes about $75.2 million of new money, which will fund construction of a patient tower on Adena's main campus. The issuance also includes about $23.757 million, which will refund the system's series 2010 bonds. As part of the transaction, Adena will contribute $5 million of cash: $2.754 million will pay off its 2017 taxable bank term loan, and the remaining funds will go toward equity for project costs.
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