Public Finance Authority — Moody’s assigns A2 to WakeMed’s (NC) Ser. 2022A; outlook stable

Rating Action: Moody’s assigns A2 to WakeMed’s (NC) Ser. 2022A; outlook stableGlobal Credit Research – 05 Jan 2022New York, January 05, 2022 — Moody’s Investors Service has assigned an A2 to WakeMed’s (NC) Taxable Bonds, Series 2022A. The proposed bonds will have a par amount of $300 million and final maturity of 2052. We are also affirming our A2 on WakeMed’s outstanding rated debt. The organization will have approximately $670 million of debt outstanding. The outlook is stable.RATINGS RATIONALEAssignment and affirmation of the A2 reflects WakeMed’s good market position in the rapidly growing and attractive service area of Wake County, NC alongside solid financial performance and good balance sheet metrics. Capital spending will remain high at least over the next two years as WakeMed makes a variety of investments in its hospitals and adds ambulatory capacity to enable it to meet the healthcare needs of a growing population and maintain leading market share. Future capital spending will be financed partially through a combination of the Series 2022A bonds and a hybrid lease, currently under consideration. The current financing increases debt by approximately $90 million and the ambulatory strategy may result in WakeMed recognizing $60 million additional debt through a hybrid lease, though the financing structure, cost and scope of individual projects are subject to change. Revenue growth will remain strong driven by growing utilization trends; many volume indicators are above pre-pandemic levels and WakeMed can decrease leverage through topline revenue growth, though additional capital investments beyond those currently planned are likely if population growth continues.RATING OUTLOOKThe stable outlook reflects our expectation that WakeMed will maintain cash flow margins at approximately current levels while continuing to grow top line revenue and gradually improve leverage metrics.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Improved and sustained leverage metrics- Maintenance of stronger cash flow margins over a multi-year periodFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Additional debt or debt equivalents that weaken leverage metrics beyond current expectations- Deterioration of cash flow marginLEGAL SECURITYJoint and several obligation of pledged assets by the Obligated Group which is comprised of WakeMed and WakeMed Property Services, which includes Raleigh Hospital, Cary Hospital, North Hospital, rehabilitation hospital, WakeMed Apex Healthplex, WakeMed Brier Creek Healthplex, WakeMed Garner Healthplex, the following medical park locations: Raleigh Medical Park, Oberlin Road, Medical Park of Cary, Health Park of Kildare, and a medical office pavilion. Wake Specialty Physicians sits outside of the obligated group. The obligated group represents 87% of the system revenues. No mortgage pledge.Annual debt service test of 1.1x, event of default only if coverage is below 1.0x for two consecutive years.USE OF PROCEEDSBond proceeds will be used to refinance debt and general corporate purposes including funding a portion of new capital expenditures or investments.PROFILEWakeMed is a not-for-profit health care system founded and based in Raleigh, N.C. The 970-bed system comprises a network of facilities throughout the Triangle area, including three full-service hospitals, seven emergency departments, a dedicated Children’s Hospital and Rehabilitation Hospital, more than 80 physician offices and Wake County’s only Level I Trauma Center. WakeMed has over 10,000 employees, 1,500 volunteers and 1,300 affiliated physicians, along with more than 580 physicians and providers with WakeMed Physician Practices.METHODOLOGYThe principal methodology used in these ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.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. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. 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. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. 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