S&P: Freeman Health System, MO Bond Ratings Raised To 'A' On Improved Credit Quality, Strengthening Financial Profile

S&P Global Ratings raised its long-term rating on the Missouri Health & Educational Facilities Authority's series 2012 fixed-rate bonds and the Joplin Industrial Development Authority's 2011 and 2015 fixed-rate bonds, issued for Freeman Health System (Freeman) to 'A' from 'A-'.

At the same time, we raised our underlying rating (SPUR) on Freeman's series 1999B and 1999C variable-rate demand bonds (VRDBs) to 'A' from 'A-', while concurrently raising the dual rating on the series 1999B and 1999C VRDBs to 'AA+/A-1+' from 'AA/A-1+'. The long-term component of the rating is jointly based on the SPUR on Freeman and a letter of credit (LOC) provided by U. S. Bank N. A. (AA-/A-1+), assuming low correlation. The short-term component of the rating is derived solely from the short-term rating of the bank. The LOC's expected expiration date is Sept. 1, 2020, unless extended or terminated earlier.

The outlook on all ratings, where applicable, is stable.

"We raised the rating based on Freeman's credit quality, given its steady balance sheet improvement and robust operating performance exhibited in recent years," said S&P Global Ratings credit analyst Patrick Zagar. Since 2015, Freeman has consistently generated operating margins above 4% and maximum annual debt service (MADS) coverage above 4x. This has contributed to the precipitous rise of unrestricted reserves, now totaling over 300% of long-term debt and equating to more than 200 days' cash on hand. In addition, the hospital's light debt load and fairly quick amortization schedule has pushed leverage down to a light 19%. We believe this financial profile accretion is a product of Freeman's healthy business position, which has largely held strong since the opening of cross-town Mercy Hospital Joplin's replacement facility in March 2015. We anticipate Freeman's financial profile will remain strong, as management continues to focus on growing the hospital's footprint within the community while maintaining accretive financial practices.

The current rating also includes a negative holistic adjustment that reflects the hospital's days' cash on hand levels that, although much improved, is light for the 'A+' rating level.

The stable outlook reflects Freeman's balance sheet and impressively stable operating profile, which we believe are supported by the hospital's well-integrated medical staff. Limited capital spending plans and no anticipated debt issuances also support the stable outlook.

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