Michigan Finance Authority — Moody’s assigns Aa3 to Trinity Health Credit Group’s (MI) Ser. 2022; outlook stable

Rating Action: Moody’s assigns Aa3 to Trinity Health Credit Group’s (MI) Ser. 2022; outlook stableGlobal Credit Research – 09 Dec 2021New York, December 09, 2021 — Moody’s Investors Service has assigned Aa3 ratings to Trinity Health Credit Group’s Hospital Revenue Bonds (Trinity Health Credit Group), Series MI 2022A ($225 million) and Hospital Revenue Bonds (Trinity Health Credit Group), Series MI 2022B ($75 million). The bonds are expected to have a final maturity in 2052. At this time we are also affirming the Aa3, P-1, and Aa3/VMIG 1 ratings on Trinity Health Credit Group’s outstanding rated debt and debt originally issued on behalf of Catholic Health East. The outlook is stable. Trinity Health Credit Group will have about $7.3 billion of debt outstanding.RATINGS RATIONALEAssignment and affirmation of the Aa3 reflects several fundamental strengths at Trinity Health including its large absolute size and good revenue and cash flow diversity among many different states and geographic regions. The organization will maintain adequate liquidity and leverage metrics, which will remain stable as Trinity Health continues to regularly issue debt to reimburse itself for prior capital spend and the comprehensive leverage position will remain favorable to peers owing to minimal operating leases and a well-funded pension (the pension reached over 100% funded status at the last measurement date in June 2021).Trinity Health will continue to generate favorable operating results in several of its largest markets that will continue to provide a stable base for the organization as a whole. Efforts to disseminate best practices and expand use of digital platforms throughout the system will continue to generate improved outcomes and patient experience and may contribute to stronger margins over the next several years; the multiyear conversion to a new electronic medical record system and revenue cycle will also aid in these efforts. The organization will continue to manage its overall portfolio, continuing investments in fast growing services such as urgent care and home health while making acquisitions or divestitures of ambulatory and inpatient assets in various markets. Like all providers nationwide, a shortage of staff, particularly among nurses and other key medical staff, will present headwinds across the system and may force it to delay or lower the overall volume of services in certain markets.Affirmation of the P-1 commercial paper rating and VMIG 1 short term rating on the self-liquidity backed VRDB’s is based on the long term Aa3 ratings and the adequacy of daily liquid investments to support unremarketed tenders and maturing commercial paper (CP) as well as management processes to ensure timely payment of maturing CP.RATING OUTLOOKThe stable outlook reflects our expectation that Trinity Health will generate stable cash flow and good debt service coverage while maintaining adequate liquidity metrics.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Stronger margins across multiple markets and for the system as a whole- Material deleveraging through debt repayment or revenue growth- Material liquidity growth- For the VMIG 1 and P-1 ratings: not applicableFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Inability to maintain margins at approximately current levels- Weakening of liquidity metrics or material increase in debt- For the VMIG 1 and P-1 ratings: downgrade of Trinity Health’s long term rating or decrease in daily liquidityLEGAL SECURITYAll debt of the legacy organizations are secured on parity through the Master Trust Indenture dated October 3, 2013. Trinity Health may not withdraw from the Obligated Group. The Credit Group consists of a single member of the obligated group, Trinity Health and its designated affiliates. The Designated Affiliates include the majority of the hospitals. The Obligated Group pledges to cause the Designated Affiliates to pay, loan or otherwise transfer to the Obligated Group such moneys as are necessary to pay amounts due on the bonds. Pledge of revenue derived from the operation of all facilities of the majority of the Designated Affiliates, including rights to receivable accounts and health care insurance receivables.Key financial covenants include debt service coverage of 1.1x and minimum 75 days cash.USE OF PROCEEDSBond proceeds will be used to reimburse Trinity Health for prior capital expenditures and refinance debt.PROFILETrinity Health is one of the largest not-for-profit healthcare systems in the U.S. operating approximately 90 hospitals and other facilities in 25 states across the U.S. The system has significant operations in other lines of business including insurance, home care, and employs nearly 7,000 physicians. It is headquartered in Livonia, Michigan.METHODOLOGYThe principal methodology used in the long-term 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 short-term ratings was Short-term Debt of US States, Municipalities and Nonprofits Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1210749. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. 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Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.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. 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