Moody's Assigns Aa3 Rating to University of Pennsylvania Health System's Revenue Bonds

Strategic Insights -

Moody's Investors Service has assigned an Aa3 rating to the University of Pennsylvania Health System's (UPHS) proposed revenue bonds, citing the system's strong clinical reputation, advanced service offerings, and integrated relationship with the University of Pennsylvania. The rating reflects UPHS's steady financial performance, substantial market capture, and sizeable revenue base, which will allow for the absorption of additional debt. The outlook on the long-term ratings is stable.

Key Takeaways:

  • Moody's has assigned an Aa3 rating to UPHS's proposed $326 million University of Pennsylvania Health System Health System Revenue Bonds Series A of 2025 and $391 million University of Pennsylvania Health System Health System Refunding Revenue Bonds Series B of 2025.
  • The rating reflects UPHS's very strong clinical reputation, advanced service offerings, and integrated relationship with the University of Pennsylvania.
  • Leverage will increase with an accelerated issuance timeline and the incorporation of Doylestown Hospital, but remain manageable as debt is absorbed.
  • We expect debt to cash flow to stabilize below 3x and cash to debt around 230-250%, in line with peers.
  • Liquidity will be modest with about 180-190 days cash on hand.
  • Competition will remain a challenge and pressures will increase as regional systems continue to extend their footprints amid consolidation.
  • The short-term VMIG 1 on the Series 2008A bonds is based on the system's ability to support unremarketed tenders with self-liquidity.
  • The bonds are also supported by a letter of credit provided by Bank of America.

Statistics:

  • $326 million University of Pennsylvania Health System Health System Revenue Bonds Series A of 2025
  • $391 million University of Pennsylvania Health System Health System Refunding Revenue Bonds Series B of 2025
  • Underlying debt outstanding will approximate $2.6 billion after the financing.
  • Debt to cash flow ratio expected to stabilize below 3x.
  • Cash to debt ratio expected to be around 230-250% in line with peers.
  • Liquidity to be around 180-190 days cash on hand.
  • Completion of the financing is expected to increase leverage, but moderate over time to remain in line with peers.

Sources:

  • Moody's Investors Service news release
  • US Municipal Short-term Debt (published in October 2024)
  • Not-for-profit Healthcare (published in October 2024)
  • Moody's rating methodologies page
  • https://ratings.moodys.com/rmc-documents/430698 (US Municipal Short-term Debt)
  • https://ratings.moodys.com/rmc-documents/430699 (Not-for-profit Healthcare)