Hospitals

University Hospitals bond issue of $150 million earns A2 rating from Moody’s Investors Service

Moody’s Investors Service has given its A2 rating — meaning upper-medium grade and subject to low credit risk — to $150 million in bonds to be issued by University Hospitals in mid-January. Moody’s gave the bonds a stable rating, citing operating margin and patient volume increases in the last year.

CLEVELAND, Ohio — Moody’s Investors Service has given its A2 rating — meaning upper-medium grade and subject to low credit risk — to $150 million in bonds to be issued by University Hospitals in mid-January.

University Hospitals will use proceeds from its Series 2010A bond sale to refinance portions of five variable-rate bond issues with combined value of $273 million in 2008, according to the Moody’s report (available free for a limited time to registered users).

In July, the credit rating service also gave its A2 rating to $100 million worth of University Hospitals bonds issued partly to pay for the health system’s $1.2 billion Vision 2010 strategic plan, which includes the building and expansion of several hospitals and outpatient facilities.

Moody’s said University Hospitals’ operating margin — a measure of operating efficiency — improved to 4.8 percent in the first nine months of 2009 over a 3.6 percent average in the prior three years. Meanwhile, the health system’s operating cash flow margin — a measure of financial strength that implies the ability to pay for expansion — improved to 10.8 percent from a 9.7 percent average.

Patient volumes also grew in that time, especially at University Hospitals Case Medical Center, the health system’s flagship academic medical center in Cleveland, Moody’s said. That’s also where the system provides a lot of its highly specialized, expensive care.

Through the first nine months of 2009, system-wide admissions grew 0.5 percent and UH Case Medical Center admissions were up 2.8 percent, while its community hospitals saw patient volume declines that were similar to other community hospitals in the region. System-wide outpatient surgeries grew 2.2 percent in the first nine months of the year, Moody’s said.

These improvements were “particularly impressive given economic challenges in the Cleveland area and regional volume declines, as well as the system’s focus on implementing numerous strategies and capital projects,” Moody’s said.

The rating service also said UH Physician Services, which combines the system’s community physicians and specialists under one leadership structure, has the potential to further improve efficiencies and reduce costs.

“We achieved these results while growing our community benefit to $210 million in 2008, maintaining our commitment to [the] Vision 2010 expansion program, investing in physicians, maintaining and improving our employee benefit packages, and expanding our operations in Northeast Ohio,” said Bradley Bond, vice president of treasury at University Hospitals, in a written statement.

“Overall, Moody’s is impressed with our growth in the midst of the recent economic downturn,” Bond said. “Furthermore, Moody’s has openly expressed confidence in UH’s bright future.”