OREANDA-NEWS. Fitch Ratings has affirmed the 'AA+' rating on approximately $4.1 billion of Senior Credit Group Bonds issued on behalf of Ascension Health Alliance (Ascension) through various conduit issuing authorities and approximately $425 million of Ascension taxable bonds.

Additionally, Fitch Ratings has upgraded the rating on approximately $489 million of Ascension Subordinate Credit Group bonds to 'AA+' from 'AA'. The upgrade of the subordinated bonds reflects Ascension's strong financial profile which is far from default and well collateralized relative to all financial obligations such that we equalize the ratings between the senior and subordinated obligations.

Fitch Ratings has also affirmed the 'F1+' short-term rating on approximately $1 billion of variable-rate and short-term debt currently outstanding and $1 billion of Ascension Taxable Commercial Paper Program at 'F1+' based on the adequacy of Ascension's self-liquidity.

The Rating Outlook is Stable.

SECURITY

Senior bond payments are secured by an interest in the pledged revenues of the senior credit group.

KEY RATING DRIVERS

BROAD OPERATING PLATFORM: Ascension is the largest non-profit Catholic health system in the United States with 100 general acute care hospitals, 372 primary care clinics and over 5,000 employed physicians in 23 states and the District of Columbia. Fitch believes that the broad operating footprint and resulting diversity of operations insulates Ascension's overall credit profile from adverse economic, demographic and operational changes in any one of its markets.

ROBUST LIQUIDITY: Liquidity metrics remain strong with 250.8 days cash on hand, 37.3x cushion ratio and 206.9% cash to debt and are either in line with or exceed Fitch's 'AA' category medians of 277.1 days, 26.5x and 178.5%, respectively.

CONSISTENT PROFITABILITY: Operating profitability has been consistent over the past six years with operating and operating EBITDA margins averaging 3.8% and 9.3%, respectively, since fiscal 2009. Operating margin increased to 4.1% in fiscal 2014 and 4.0% in the nine month interim period ending March 31, 2015 (the interim period) while operating EBITDA margin increased to 9.5% in both periods.

LIGHT DEBT BURDEN: Ascension's debt burden remains light with MADS equal to 1.7% of fiscal 2014 operating revenue relative to Fitch's 'AA' category median of 2.6%. MADS coverage by EBITDA and operating EBITDA remain strong, equal to 6.6x and 5.6x, respectively, in the interim period.

STRONG MANAGEMENT PRACTICES: Ascension's management practices and information systems are key credit strengths with a continued focus on operational improvement initiatives, centralization, standardization, synergistic acquisitions of new entities and divestitures of entities that are no longer congruent with the system's strategic goals.

SHORT-TERM RATING: At June 30, 2015, Ascension's eligible cash and investment position under Fitch's criteria would cover the maximum mandatory put on self-liquidity bonds on any given date in excess of Fitch's 1.25x threshold for the 'F1+' short-term rating.

RATING SENSITIVITIES

CONSISTENT CREDIT PROFILE: Fitch expects Ascension Health Alliance's liquidity metrics to remain strong, operating profitability to remain in line with historical results and the debt burden to remain light, allowing for strong MADS coverage.

CREDIT PROFILE

Ascension, headquartered in St. Louis, MO, is the largest non-profit Catholic health care system in the United States. The System operates 100 general acute care hospitals, 69 outpatient surgery centers, 372 primary care clinics and over 5,000 employed physicians located across 23 states and the District of Columbia. Consolidated total operating revenues equaled $20.2 billion in fiscal 2014.

Since Fitch's last review, Ascension engaged in a number of merger, acquisition and divestiture transactions. Ascension acquired U.S. Health Holdings, LTD (USHH). USHH is headquartered in Michigan, licensed in 20 states and provides life, accident and health related insurance policies on a group basis, in addition to providing benefits processing, payments and other services. Additionally, Ascension divested certain operations in its Kansas City, Missouri and Niagara Falls, New York markets and acquired four hospitals in Tennessee. Ascension, through its subsidiary Ascension Health, together with Tenet Health System Medical, Inc. and Dignity Health (Fitch rated 'A') formed CHN Holdings, LLC, in which Ascension will hold a noncontrolling interest. Ascension entered into a definitive agreement with the joint venture which is expected to result in Ascension's sale of specified assets and liabilities of its current operations in Tuscon, Arizona to the joint venture. The transactions are not expected to have a material impact on Ascension's credit profile. Fitch views Ascension's proactive approach to managing its operating portfolio as a credit strength.

BROAD OPERATING PLATFORM

Ascension's wide geographic diversity and large scale of operations make it unique among Fitch's non-profit healthcare systems. Fitch views the broad operating platform as a credit strength as it helps to insulate the system from adverse economic, demographic and operational challenges in any individual market. Additionally, Ascension has been expanding its presence in insurance and non-acute service lines such as long term care, home health, senior housing and outpatient rehabilitation in order to prepare for value based reimbursement models.

ROBUST LIQUIDITY

With $13.0 billion of unrestricted cash and investments at March 31, 2015, Ascension's strong liquidity metrics provide a substantial financial cushion. Liquidity metrics remain strong with 250.8 days cash on hand, 37.3x cushion ratio and 206.9% cash to debt, comparing favorably with Fitch's 'AA' category medians of 277.1 days, 26.5x and 178.5%, respectively.

CONSISTENT PROFITABILITY

Operating profitability has been consistent over the past six years with operating and operating EBITDA margins averaging 3.8% and 9.3%, respectively since fiscal 2009. Operating margin increased to 4.1% in fiscal 2014 and 4.0% in the interim period, while operating EBITDA margin increased to 9.5% in both periods. Fitch notes that operating EBITDA margins remain light relative to the 'AA' category median of 11.0% while operating margins remain in line with the 'AA' category median of 3.9%.

Operating results reflect the system's continued operating improvement initiatives, investment in physician alignment and sub-acute business lines and the continued investment in Ascension's Symphony software platform. The Symphony software platform, of which implementation began in 2010, is estimated to cost a total of $1.8 billion and to generate $2.4 billion in total savings. Ongoing total savings are expected to far outpace ongoing total costs and the Symphony project should further bolster profitability going forward.

LIGHT DEBT BURDEN

Ascension's light operating cash flow is mitigated by its light debt burden, with MADS equal to 1.7% of operating revenues in fiscal 2014. Ascension's light debt burden and adequate cash flows combine to generate strong debt service coverage. MADS coverage by EBITDA equaled 7.0x in fiscal 2014 and 6.6x in the interim period, easily exceeding Fitch's 'AA' category median of 5.4x. Similarly, MADS coverage by operating EBITDA equaled 5.5x in fiscal 2014 and 5.6x in the interim period, exceeding Fitch's 'AA' category median of 4.4x.

STRONG MANAGEMENT PRACTICES

Fitch views Ascension's management practices as a credit strength which should allow the organization to extract further efficiencies based on the system's sheer size and scale. The system's strong management practices are evidenced by a history of successful operating improvement initiatives, continued consolidation of shared corporate services and a willingness to close or divest operations. Ascension's broad operating platform has allowed the management team to identify industry trends and to test strategies in individual markets that can then be exported throughout the system. The management team has a track record of successfully testing new technologies and strategies in individual markets and then incrementally implementing them throughout the system.

SHORT-TERM RATING

The affirmation of the short-term 'F1+' rating is based on the sufficiency of Ascension's liquid resources and written procedures to fund the potential purchase price of debt supported by self-liquidity on each mandatory tender date. As of June 30, 2015, Ascension had a total of $551 million of tax exempt weekly VRDBs, $391 million of variable-rate bonds in seven-month Windows mode and approximately $22.9 million of multi-annual put bonds which come due within 90 days that are supported by Ascension's internal liquidity. Additionally, Ascension has a taxable commercial paper program which has been authorized up to $1 billion of which there were no amounts outstanding at June 30, 2015. Ascension has staggered the put dates on its multi-annual puts such that the maximum put exposure in any given week including weekly VRDBs and multi-annual puts supported by self-liquidity is approximately $712.4 million, excluding the bonds in Windows mode. Liquidity is supplemented by two $500 million lines of credit with expiration dates in 2017. Based on Fitch's Rating Criteria related to Self-Liquidity, Ascension had eligible cash and investments in excess of the 125% threshold of its maximum put exposure for the 'F1+' rating.

DEBT PROFILE

Ascension had approximately $6.3 billion of total consolidated debt outstanding at March 31, 2015, composed of approximately 63% underlying fixed rate bonds and 37% underlying variable rate bonds. The system was counterparty to approximately $2.5 billion in interest rate swaps at March 31, 2015. No related collateral was required to be posted.

DISCLOSURE

Ascension covenants to provide annual disclosure within 180 days of each fiscal year end and quarterly disclosure within 60 days of the end of the first three quarters. Disclosure is provided through the Municipal Securities Rulemaking Board's EMMA system. Additionally, Ascension posts annual and quarterly disclosure on its website at www.ascensionhealth.org.