University Health System, TN's Series 2020 Revenue Bonds Rated 'BBB'

COLUMBIA (S&P Global Ratings) March 27, 2020--S&P Global Ratings assigned its 'BBB' long-term rating to the Knox County Health, Educational, and Housing Facility Board, Tenn.'s approximately $150 million series 2020 revenue bonds issued on behalf of University Health System Inc. (UHS). At the same time, S&P Global Ratings affirmed its ratings on UHS's existing bonds. The outlook is stable.
The series 2020 bonds will be used to fund a variety of capital projects intended to grow UHS' capacity as well as construct a 1,000 space parking deck. Approximately $10 million will also be used to pay off the series 2014 direct purchase debt. UHS' gross revenues secure the bonds.
"The rating reflects UHS' growing utilization and market share, stable and experienced management team, and healthy economic fundamentals," said S&P Global Ratings credit analyst Luke Gildner. The rating also reflects UHS' improving financial performance with good operating results over the last two years after a period with negative operating margins. We expect financial performance to remain positive as many of the factors supporting the recent improvement, including UHS going back in network with BlueCross Blue Shield's (BCBS) "Blue Network S" plan, should continue to support healthy results. The system's balance sheet remains constrained with high pro forma leverage and modest liquidity for the rating level, though this is expected to improve over time with continued positive financial performance.
The stable outlook reflects the expectation of continued positive financial performance, which we expect will translate to modest improvement in balance sheet metrics over time. UHS' solid business position as the area's only academic medical center and leading trauma provider in a competitive market also supports the stable outlook.
The COVID-19 pandemic continues to be a rapidly changing situation that is disrupting the acute care sector across the country. While the duration, timing, and severity of the impact are unclear, and may vary by type of hospital and region, we believe the pandemic and its associated economic and social challenges, could pressure volume, earnings, and unrestricted reserves. We believe UHS has the capacity to absorb some strain on its financial metrics, but a more prolonged or severe stress could cause us to revise that view.
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