Bangkok--2 Jun--Standard & Poor's
Standard & Poor's Ratings Services lowered its long-term rating and underlying rating (SPUR) on the outstanding debt issued on behalf of Banner Health, Ariz. to 'A+' from 'AA-'. The short-term components of the ratings are based on letters of credit from a consortium of banks. At the same time, Standard & Poor's affirmed its long-term ratings based on joint criteria and revised its outlook on the outstanding debt to stable from negative.
The rating downgrade is due mainly to balance sheet erosion related to considerable increases in debt in both 2008 and 2007, which we cited in our negative outlook in August 2008. At that time, we noted that there was no flexibility at the 'AA-' rating level, and that any further balance sheet deterioration would likely result in a lowered rating. The liquidity declines related to the investment market turmoil, and to a certain extent collateral postings related to its swap portfolio, have compounded the strain on Banner's balance sheet, particularly its cash-to-debt ratio.
In our opinion, Banner continues to have the following strong credit fundamentals: a solid market position in its core markets in the greater Phoenix and northeast Colorado service areas; very good year-to-date performance with sound cash flow; good revenue growth (aided in part by a recent acquisition); a very low average age of plant, which positions the system well for future efficiencies; and a sound management team that implemented cost containment measures and strategic growth and quality initiatives.
Security for the bonds is a gross revenue pledge from the Banner Health obligated group under the master trust indenture. The obligated group accounts for the vast majority of system revenue and income, and Standard & Poor's uses consolidated system financial statements for analytical purposes.
"While the recent increases in debt and more recent drops in liquidity due to the financial markets have strained the balance sheet, the credit fundamentals are in line with an 'A+' rating," said Standard & Poor's credit analyst Geraldine Poon.
Banner is the clear market leader in the Phoenix, Ariz. market, with seven acute-care hospitals and an approximately 32.6% market share of county discharges (in 2007).
RELATED RESEARCH
-- USPF Criteria: "Not-For-Profit Health Care," June 14, 2007
-- USPF Criteria: "LOC-Backed Municipal Debt," July 2, 2007
-- USPF Criteria: "Debt Derivative Profile Scores," March 27, 2006
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.
Media Contact:
Ana Sandoval, New York (1) 212-438-5095, [email protected]
Analyst Contacts:
Geraldine Poon, San Francisco (1) 415-371-5078
Kevin Holloran, Dallas (1) 214-871-1412
Key Contacts:
Americas Media Relations: (1) 212-438-6667
media_ [email protected]
Americas Customer Service: (1) 212-438-7280
[email protected]