Standard & Poor's Ratings Services revised its rating outlook to positive from stable on debt issued for UMass Memorial Medical Center, part of UMass Memorial Health Care in Worcester, Mass.
S&P based its revision on a trend of strong operating performance and liquidity growth, as well as a solid business position, according to credit analyst Jennifer Soule.
"The positive outlook reflects UMass Memorial's solid market position, volume increases, and its ability to maintain strong operating and excess margins, as well as debt service coverage," said Soule.
Standard & Poor's also assigned its 'BBB+' long-term rating to the $61.3 million 2010 series G revenue bonds issued by the Massachusetts Health and Educational Facilities Authority for the medical center.
UMass Memorial has reported strong operations over the past several years under a stable management team that has been in place since 2002. It is the major teaching hospital for the state's only public medical school – the University of Massachusetts Medical School – and a safety-net provider for the area.
Soule said the facility has realized steady use growth in recent years and – despite decreases in various levels of reimbursement, including periods of reduced government reimbursement and payer increases that were lower in some years – management has adjusted its expense base to realize its current level of financial performance.
"UMass Memorial plans to continue focusing on its strategic plan in the coming years and has a capital plan in place to update its facilities and information technology system to support the demands of its patients," said Soule.
Other factors Soule cited that support the rating include UMass Memorial's increased liquidity through fiscal 2009 and the first six months of fiscal 2010 ended March 31, dominant and growing market share over the large central Massachusetts region,; and growth in nearly all inpatient and outpatient service lines.
Soule said the rating incorporates some of the uncertainty regarding the receipt of Medicaid supplemental funding in future years. She believes the Commonwealth's consistent financial support during this recessionary period is indicative of its commitment to provide the hospital with sufficient supplemental funding.
Standard & Poor's also considered UMass Memorial's plan to issue up to $85 million in additional debt within the next 12-18 months.
According to Standard & Poor's, if UMass Memorial continues to post strong profits, realizes stable use and continues its cash growth over the next one to two years, including the additional debt, the rating may be raised to 'A-'.
However, if UMass Memorial's financial profile deteriorates severely or if the Commonwealth reduces its supplemental funding significantly without an alternative infusion of revenue, the outlook may be revised or the rating lowered.