Dignity Health, CA#s Various Types Of Revenue Bonds Assigned #A# Rating

Stocks and Financial Services Press Releases Friday September 26, 2014 17:19
SAN FRANCISCO--26 Sep--Standard & Poor's

SAN FRANCISCO (Standard & Poor's) Sept. 25, 2014--Standard & Poor's RatingsServices assigned its 'A' rating to Dignity Health, Calif.'s, series 2014Ataxable revenue bonds, which are expected to be issued in an amount up to $888million and bear interest at a fixed rate. At the same time, we assigned our'A' rating to the California Health Facilities Financing Authority's $300million series 2014B tax-exempt revenue bonds issued for Dignity Health thatwill be privately placed with Deutsche Bank by Bank of Montreal as placementagent. Standard & Poor's also assigned its 'A' rating to Dignity Health's $100million taxable direct placement loan with CitiBank (five-year term). Dignity

Health also plans to enter in to an additional $100 million direct placementloan (unrated) with Fifth Third Bank, also with a five-year term. In total,the 2014 plan of finance is expected to include a total par value of up toapproximately $1.4 billion. In addition to the rating assignments, Standard &Poor's affirmed its 'A' long-term rating and underlying rating (SPUR) onoutstanding tax-exempt and taxable bonds (various series and various issuers)issued on behalf of Dignity Health. The outlook on all ratings is stable.

Finally, Standard & Poor's affirmed its 'AAA/A-1+' and 'AAA/A-1' ratings onseveral series of Dignity Health's variable-rate demand bonds (VRDBs), basedon the application of our joint criteria. The long-term component of the jointcriteria ratings is based jointly on Dignity Health's SPUR and the long-termrating of each of the individual letter-of-credit (LOC) banks while theshort-term component is based solely on our rating on the LOC bank.

"The long-term ratings and SPURs reflect our assessment of Dignity Health'sweak operating performance (according to our calculations, which differ fromDignity Health's calculations) brought on by the continued effects of volumesoftness, an unfavorable reimbursement environment, and investments related toevolving the organization within the changing health care environment, all of

which have weighed on results during the past several fiscal years," saidStandard & Poor's credit analyst Kenneth Gacka. "As anticipated at the time ofour previous analysis (published April 4, 2014), Dignity Health's operatingperformance remained negative through the end of fiscal 2014, but strong

non-operating income led to steady bottom line profitability," added Mr.Gacka.

The operating losses were driven by the fact that Dignity Health was not ableto record the net benefit from California's provider fee program during thepast two quarters of fiscal 2014. The provider fee has been a significantdriver in maintaining recent-year profitability. Although the provider feeprogram was approved by the state for a three-year extension through 2016,approval by the Centers for Medicare and Medicaid Services (CMS) is notexpected to occur until late calendar year 2014. Consequently, the benefitfrom the program related to 2014 will not be reflected until fiscal year2015's financial statements, likely resulting in a favorable spike in fiscal2015's operating margin as prior-period and current-period benefits arerecognized.

The proceeds are expected to be used for several refinancings (bonds andworking capital lines of credit) and to provide approximately $611 million ofnew money for general corporate purposes and to pay costs of issuance.


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