Baptist Health System Inc. Of Jacksonville, FL 2022 Health Care Facilities Revenue Bonds Rated 'AA'
NEW YORK (S&P Global Ratings) May 13, 2022--S&P Global Ratings assigned its 'AA' long-term rating to the City of Jacksonville, Fla.'s $200 million series 2022 health care facilities revenue bonds, issued for Baptist Health System Inc. of Jacksonville (Baptist Health Jacksonville or Baptist Health). The outlook is stable.
In addition, S&P Global Ratings' affirmed its 'AA/A-1+' rating on Baptist Health's series 2019 B-E variable rate demand bonds (VRDB's). The long rating reflects the underlying credit quality of Baptist Health, while the 'A-1+' short-term rating reflects its provision of self-liquidity in the event of a failed remarketing. As of March 31, 2022, the health system held cash, fixed income, and equity assets of $1.19 billion (excludes international equity and alternative investments of roughly $676 million), which when discounted per S&P Global Ratings criteria, totaled $646 million. These assets provide ample coverage for the $182 million variable-rate demand bonds. On a monthly basis, S&P Global Ratings will monitor the sufficiency and the liquidity of assets identified for self-liquidity.
In 2020 and 2021, Baptist Health borrowed $250 million and $150 million, respectively, of direct purchase bank debt. While S&P Global Ratings did not rate the series 2020C, 2020D, 2021A, and 2021B issuances, we have incorporated the additional debt into our credit rating analysis.
A gross revenue pledge secures the $200 million series 2022 bonds, which are on parity with Baptist Health's existing debt obligations. The master indenture creates a security interest in the pledged assets of each member of the obligated group. The series 2022 bonds are being issued to finance all or a portion of the costs of certain capital expenditures at various Baptist Health facilities. Total pro forma debt is estimated at roughly $1.17 billion.
"The rating reflects Baptist Health's consistent credit profile, continuing its trend of positive operating results in fiscal 2021, even when excluding CARES Act grant funding," said S&P Global Ratings credit analyst Stephen Infranco. While the six-month year to date operating results were breakeven as per S&P Global Ratings calculation, mainly due to inflationary pressure and higher labor and staffing costs, management indicates the monthly run rate is improving and there are some revenue enhancements not yet included in the fiscal 2022 year-to-date numbers and a potential small amount of CARES Act funding to still be recognized which should help offset some of the higher expense base. In addition, we believe Baptist Health will continue to focus on performance improvement initiatives and management expects some relief on the high labor costs over the remainder of the year. Despite the margin compression in fiscal 2022, Baptist Health's unrestricted reserves remain solid and a continued key credit strength, while debt levels are more elevated for the rating.. While capital spending will remain elevated in the near term to support strategic growth; liquidity and financial flexibility are still sound, and we believe the overall financial profile remains consistent with the rating.
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| Primary Credit Analyst: | Stephen Infranco, New York + 1 (212) 438 2025; stephen.infranco@spglobal.com |
| Secondary Contact: | John Magers, New York (1) 212-438-1151; john.magers@spglobal.com |
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