Mountain States Health Alliance Credit Rating Updated by Standard and Poor's, Report States Proposed Merger May Support Favorable Rating Action

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Cites strong operational and financial trends by Mountain States that, if sustained, would also support favorable rating action

Mountain States Health Alliance has received a ratings update from Standard and Poor’s Rating Services, affirming its BBB+ rating. The rating outlook remains stable, with commentary that continued positive operational and financial trends at Mountain States “would support favorable rating action” by the rating service.

The Standard and Poor’s rating comes three days after Moody’s Investors Services renewed its Baa1 rating with stable outlook for Mountain States. To view that report, visit http://www.mountainstateshealth.com/Moodys.

The rating by Standard and Poor’s reflects, among other things, the rating agency’s view of Mountain States’:

  • Excellent business position, characterized by solid demographics, robust market share and a broad range of services
  • Strong management and governance
  • Continued strong financial performance and solid liquidity based on days cash on hand
  • Disciplined capital spending in recent years supporting a reduction in leverage over time
  • Favorable record of integrating acquired facilities
  • Improvement in debt ratios
  • Stable to improving patient volumes

In its report, Standard and Poor’s said it “views MSHA’s trends favorably, and, if sustained, we may raise the ratings in the future…” The rating agency said, “in our view, MSHA generated solid operating performance in fiscal 2015, supported by solid patient volume growth and continuing improvement in the expense base largely through labor and supply cost management efforts."

Citing the continued operating challenges for hospitals posed by downward reimbursement pressure from government and commercial payers, the rating agency said, “in our view, MSHA’s leadership is capably managing these challenges."

“The rating report from Standard and Poor’s is a very positive commentary on the operations of Mountain States Health Alliance, and we are grateful they recognize the financial stewardship and quality of our organization,” said Mountain States’ President and CEO Alan Levine. “Our doctors and health care professionals work hard every day to earn the trust of our patients and their families, and it shows in our results.”

Standard and Poor’s cites that Mountain States Health Alliance has embarked on a strategy to pare back its debt, with a debt reduction plan approved by the board of directors in 2014. As referenced by the rating agency, Mountain States incurred significant debt during a period of growth as several hospitals were acquired, new hospitals were built and major investment was made in existing facilities in communities throughout the region. The major tranches of debt have been: an approximate $340 million related to the acquisition of the former Columbia/HCA hospitals in the region, $355 million invested in acquisition of additional community hospitals and subsequent replacement or capitalization of the hospitals, and $300 million related to capitalization and investment into existing hospitals and services and investment in technology. Even as significant debt reduction has taken place since 2014, Mountain States continues to invest in its assets, funding this investment through operating cash flow rather than borrowing. Mountain States has invested more than $110 million in capital since July 2014.

Commentary on Proposed Merger with Wellmont

Mountain States Health Alliance and Wellmont Health System announced in April 2015, that they would explore a merger between the two systems. Last week, the two systems announced that both boards of directors have authorized the execution of a definitive agreement and the submission of an application for regulatory approval in Tennessee and Virginia. The merger is expected to occur in late summer 2016.

Standard and Poor’s commented on the proposed merger, saying that, if approved, “we believe that, over time, the merger of these two health systems has the potential to create both operating and financial synergies. Additionally, we believe that, individually, MSHA’s operational and financial trends have demonstrated improvement over the past few years, and, if sustained, would support favorable rating action.” The rating agency says they are unlikely to take favorable rating action until the merger is complete and there is demonstrated success in the integration of the two systems.

“We are pleased Standard and Poor’s has once again affirmed our creditworthiness as a major health system, and we remain committed to best practice governance, which works collaboratively with management to achieve solid financial and operating results,” said Mountain States Board Chair Barbara Allen. “We are also glad that Standard and Poor’s recognizes the value of the proposed merger with Wellmont. We agree that successful integration is key, and we believe we have the experienced management team to make it happen.”

The complete Standard and Poor's report is attached.

About Mountain States Health Alliance

Since 1998, Mountain States Health Alliance has been bringing the nation’s best health care close to home to serve the residents of Northeast Tennessee, Southwest Virginia, Southeastern Kentucky and Western North Carolina. This not-for-profit health care organization based in Johnson City, Tenn., operates family of 13 hospitals serving a 29-county region. Mountain States offers a large tertiary hospital with level 1 trauma center, a dedicated children’s hospital, several community hospitals, two critical access hospitals, a behavioral health hospital, two long-term care facilities, home care and hospice services, retail pharmacies, a comprehensive medical management corporation, and the region’s only provider-owned health insurance company. The team members, physicians and volunteers who make up Mountain States Health Alliance are committed to caring for you and earning your trust. For more information, visit http://www.MountainStatesHealth.com.

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Teresa Hicks

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