SVH: Adventist Health Receives ‘A’ Rating

Adventist Health Receives ‘A’ Rating

On May 30, Adventist Health received an ‘A’ rating with stable outlook from both Standard & Poors Rating Services and Fitch Ratings on $168 million in hospital revenue bonds. The bonds went on sale June 12 and quickly sold at attractive interest rates.

Earlier in the week, an investor call drew an unusually large number of participants, including mutual fund managers such as Prudential Financial, Vanguard Group, Dreyfus Corporation and Fidelity Investments.

The strong ratings were supported by Adventist Health’s operating performance and system diversity. The organization’s financial performance has steadily improved since 1999 due to the divestiture of unprofitable medical foundations in California, renegotiated managed care contracts and increased volume.

“A lot of time and effort has been expended by the management and employees at each of our hospitals to produce improved operating results,” said Donald R. Ammon, president and CEO of Adventist Health. “I’d like to thank all who have contributed to our success.”

While Adventist Health has issued bonds in the pastæ$115 million in 1998 and $60 million in 2002æthis is the first time the organization has pursued a credit rating. Previously, the system was able to purchase bond insurance or other credit enhancement, thus avoiding the rating process. But the landscape has changed. Bond insurance is no longer an option due to California’s weak economy and the perception that health care is a “high risk” industry.

Going forward, the system will provide regular financial and statistical reports to the investor community, including the rating agencies. Because a rating can be changed at any time, it is important that Adventist Health’s financial performance remain strong. For that reason, new capital projects must generate a reasonable return on investment. And there will be an increased emphasis placed on consistent operations and cash levels across the organization.

Proceeds from the bonds will be used to fund Adventist Health’s 10-year Capital Plan (over $1 billion), which includes the upgrade and retrofit of seven system hospitals. Many of these construction projects were prompted by SB 1953, California legislation requiring hospitals to meet stringent earthquake standards. The issuance will also help fund Project IntelliCare, a state-of-the-art clinical information system.

Posted 6/17/03