CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded the ratings for the following bonds to 'BBB' from 'BBB+', issued by the Illinois Health Facilities Authority and Illinois Finance Authority on behalf of Provena Health and Resurrection Health Care as parity obligations under the Presence Health Network (Presence) indenture:
--$91.6 million series 2010A (Legacy Provena Debt);
--$200 million series 2009A (Legacy Provena Debt);
--$51.9 million series 2009 (Legacy Resurrection Debt);
--$79.6 million series 1999A (Legacy Resurrection Debt);
--$79.6 million series 1999B (Legacy Resurrection Debt).
The ratings for the bonds have been placed on Rating Watch Negative.
SECURITY
The bonds are supported by a pledge of gross revenues of the Presence Health obligated group, mortgages on nine Presence obligated facilities, and debt service reserve funds on select bond series.
KEY RATING DRIVERS
UNEXPECTED OPERATING LOSS: The downgrade to 'BBB' from 'BBB+' is driven by Presence's announcement that it expects to report a $186 million loss from operations for the fiscal year ending Dec. 31, 2015. The 'BBB' rating reflects the magnitude of the expected full year loss which deviates significantly from management's projections through the nine-month interim period ended Sept 30. The losses stem from both recurring and non-recurring items resulting from internal systems processes and controls related to revenue cycle, but are not expected to impact liquidity.
DEBT SERVICE COVERAGE VIOLATION: The ratings placement on Rating Watch Negative reflects the likely debt service coverage covenant violation evident in 2015 unaudited fiscal results (pending audited financial results) which is expected to trigger an event of default (EoD) under Presence's various loan documents. The EoD will require waivers from both the bank lenders and bondholders.
RATING SENSITIVITIES
POSSIBLE DEBT ACCELERATION: The anticipated violation of the rate covenant is an event of default under Presence Health's master indenture and the bank loan documents, with acceleration as one possible remedy. Presence is currently working to obtain waivers from its banks and bondholders. Removal from Rating Watch is likely once the necessary waivers are received.
RELEASE OF AUDIT: Fitch expects to review the rating upon the release of the 2015 audit and further discussions with management.
CREDIT PROFILE
Presence Health Network was created in November 2011 via a merger between Provena Health and Resurrection Health Care, and is the largest Catholic health system based in Illinois. The Presence system currently includes 11 hospitals with over 3,148 licensed beds, several long-term care and senior living facilities, and dozens of physician offices and health centers, home care, hospice, behavioral health services and other entities serving the Chicagoland and East Central Illinois market.
Presence reported total revenues of $2.5 billion in 2015 (unaudited, Dec. 31 year end). Fitch uses consolidated financial statements in its analysis. The obligated group (OG) includes 11 members, with Presence Health Network as the obligated group (OG) agent. The OG represents approximately 94% of consolidated system operating revenue and 99% of consolidated system assets.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012
U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866807
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1001193
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001193
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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