OREANDA-NEWS. A majority of the 2016 bond proceeds are expected to refinance debt issued by both Robert Wood Johnson University Hospital (RWJUH) and Barnabas Health. Approximately $200 million of the bonds will be used for various capital expansion and renovation projects, the largest of which is a new bed tower at Saint Barnabas Medical Center (SBMC).

Pending the refinancing, S&P Global Ratings is taking the following rating actions on RWJUH and Barnabas Health's outstanding debt:We raised the rating on New Jersey Health Care Facilities Financing Authority's fixed-rate series 2006A, 2006B, 2011A, 2012A, 2014A, and 2012 taxable bonds issued for Barnabas Health to 'A+' from 'A-'. Proceeds from the 2016 bonds are expected to refinance the series 2006A, 2006B, and 2011A bonds. The outlook is stable. We raised the underlying rating (SPUR) on New Jersey Health Care Facilities Financing Authority's series 1998B bonds issued for Barnabas Health to 'A+' from 'A-'. Proceeds from the 2016 bonds are expected to refinance these bonds. The outlook is stable. We raised the rating on New Jersey Health Care Facilities Financing Authority's series 2010, 2013A, and 2014A fixed-rate bonds issued for RWJUH to 'A+' from 'A'. Proceeds from the 2016 bonds are expected to refinance the series 2010 bonds. The outlook is stable. We raised the rating on New Jersey Health Care Facility Financing Authority's 2011B and 2011C bonds to 'AA+/A-1' from 'AA/A-1' based on the application of joint criteria where the long term component of the rating is based jointly on our rating on Barnabas Health and the letter of credit (LOC) provider J. P. Morgan Chase Bank N. A. and the short-term rating is based solely on our short-term rating on the LOC provider. We also raised our SPUR on these same bonds to 'A+' from 'A-'. Proceeds of the 2016 bonds are expected to refinance the series 2011C bonds; andWe affirmed the 'AA+'/A-1+' rating on New Jersey Health Care Facility Financing Authority's 2013B bonds based on the application of joint criteria where the long-term component of the rating is based jointly on our ratings on RWJUH and LOC provider Wells Fargo, and the short-term rating is based solely on our short-term rating on the LOC provider. We raised our SPUR on these bonds to 'A+' from 'A'. Effective April 1, Robert Wood Johnson Health Care Corp. (RWJHCC), the parent of RWJUH, merged with Barnabas Health. The resulting organization has robust size and scale, which we believe can be translated into financial metrics that remain, as they are now on a pro forma basis, consistent with an 'A+' system rating.

"The rating reflects our assessment of RWJ Barnabas Health's geographic and financial diversity of system assets; solid state-wide market share; financial metrics that are in line with the higher rating level; benefits of the debt restructuring; commitment to profitable ambulatory expansion within the system and into adjacent service areas; management team with proven turnaround and integration skills; and generally favorable service area demographics," said S&P Global Ratings credit analyst Cynthia Keller. Partially offsetting rating factors include our assessment of RWJ Barnabas Health's operating risks in certain markets including Newark and at several historically challenged system providers, such as Hamilton and Lakewood; reliance on disproportionate share and state subsidy funds; and competitive service area.

The stable outlook reflects our expectations that RWJ Barnabas Health will achieve integration savings sufficient to offset industry pressure on revenue and expenses, especially in light of anticipated reductions in state and federal subsidies during the outlook period. The outlook also reflects the organization's balance sheet, which we expect will remain stable.

While not anticipated during the two-year period covered by our outlook, a higher rating could be possible with a significant increase in unrestricted reserves to levels commensurate with a higher rating and no additional debt, as debt metrics are slightly elevated for the rating level. In addition, we would need a track record of continued robust debt service coverage even with anticipated revenue pressure.

Depending on the magnitude of change, a sustained drop in unrestricted reserves below 150 days' cash on hand or an unexpectedly large additional debt issuance without a commensurate increase in reserves could result in an outlook revision to negative or a downgrade. We will also continue to assess the impact of any funding changes in disproportionate share and state charity care subsidies on RWJ Barnabas Health. In addition, at this rating level, we would expect most components of the system to remain accretive to operations.

RWJ Barnabas Health operates 11 acute-care hospitals, four of which are licensed for over 500 beds; RWJUH in New Brunswick and Somerset; Saint Barnabas Medical Center in Livingston, Newark Beth Israel Hospital in Newark, and Community Medical Center in Toms River

S&P Global Ratings assigned its 'A+' rating to New Jersey Health Care Facilities Financing Authority's $613 million series 2016A tax-exempt bonds issued for RWJ Barnabas Health. In addition, S&P Global Ratings assigned its 'A+' rating to RWJ Barnabas Health's $456 million series 2016B taxable bonds. The outlook is stable.