Fitch Places Wellmont Health System, TN Revs on Rating Watch Evolving

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has placed on Rating Watch evolving the 'BBB+' rating on the following Health, Education and Housing Facilities Board of the County of Sullivan, Tennessee bonds issued on behalf of Wellmont Health System (Wellmont):

--$76,165,000 hospital revenue refunding bonds (Wellmont Health System Project), series 2011;

--$200,000,000 hospital revenue bonds, series 2006C (Wellmont Health System Project);

In addition, Fitch places the 'BBB+' rating on the following parity debt also issued on behalf of Wellmont on Rating Watch Evolving:

--$55,000,000 Virginia Small Business Financing Authority hospital revenue bonds, series 2007A (Wellmont Health System Project).

SECURITY

Debt payments are secured by a pledge of the gross revenues of the obligated group. In addition, a fully funded debt service fund and a liquidity covenant provide additional security.

KEY RATING DRIVERS:

MERGER ANNOUNCEMENT: Fitch has placed Wellmont's 'BBB+' rating on Rating Watch Evolving due the announcement that Wellmont and Mountain States Health Alliance (general revenue bonds rated 'BBB+' by Fitch) have signed an agreement to explore a merger. The announcement states that the two organizations are exploring a plan to combine assets and operations to form a new integrated health care system that will include a combined board.

UNDERTAKING DUE DILIGENCE: The organizations plan to enter a period of due diligence, which is expected to conclude by July or August of 2015, and then submit a Certificate of Public Advantage to Tennessee and a similar application to Virginia by the end of August seeking approval of a merger. Fitch will take rating action at the appropriate time as the process unfolds and clarifying details emerge on the new health system.

OPERATIONS STEADY: Fitch recently met with senior management of Wellmont, and a review of Wellmont's operations and financial results indicate a steady financial profile. Six month Dec. 31, 2014 results show a 1.2x operating margin, 2.3x coverage and 202 days cash on hand.

RATING SENSITIVITIES

COMPLETION OF PENDING TRANSACTION: Resolution of the rating watch will be tied to the completion of the pending transaction and the treatment of Wellmont's debt post-transaction.

Credit Profile

Wellmont is a large regional health care system with seven acute hospitals (816 staffed beds) and other related entities located in northeastern TN and southwestern VA. Wellmont had approximately $772.7 million in total revenue in fiscal 2014 (Sept. 30 year end).

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Revenue-Supported Rating Criteria', June 16, 2014;

--'U.S. Nonprofit Hospitals and Health Systems Rating Criteria', May 30, 2014.

Applicable Criteria and Related Research:

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

U.S. Nonprofit Hospitals and Health Systems Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=746860

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982497

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Fitch Ratings
Primary Analyst
Gary Sokolow
Director
+1-212-908-9186
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10014
or
Secondary Analyst
Jennifer Kim
Director
+1-212-908-0740
or
Committee Chairperson
James LeBuhn
Senior Director
+1-312-368-2059
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
[email protected]

Source: Fitch Ratings

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