Rating Action: Moody's assigns A2 to Orlando Health, Inc.'s (FL) Series 2022; outlook stableGlobal Credit Research - 28 Jan 2022New York, January 28, 2022 -- Moody's Investors Service has assigned an A2 to Orlando Health, Inc.'s (FL) (Orlando Health) proposed $350 million Hospital Revenue Bonds (Orlando Health Obligated Group), Series 2022. At the same time, Moody's affirmed Orlando Health's existing A2 revenue bond ratings. The outlook is stable. This affects about $2.25 billion in total debt following this transaction.RATINGS RATIONALEThe assignment and affirmation of the A2 reflects Moody's view that Orlando Health will continue to benefit from its position as a large regional centralized health system and still relatively strong operating performance despite headwinds. Management's demonstrated ability to execute successful growth strategies will mitigate risks associated with new and future investments. Days cash metrics are expected to decline in fiscal 2023 due to higher than previously anticipated capital spend but will remain solid. As the system takes on additional debt to fund a new hospital in Seminole County, cash to debt will decline to adequate levels. The A2 rating assumes the system will not take on more debt until leverage metrics improve amid ongoing evaluation of growth opportunities. All of Orlando Health's markets will remain highly competitive although the system has increased its share within a four-county central Florida region. Orlando Health's integration of Bayfront in St. Petersburg, a new market for the system, will provide some risk although performance is expected to continue to improve.RATING OUTLOOKThe stable outlook reflects Moody's expectation that Orlando Health will sustain very good OCF margins despite headwinds including labor challenges. The outlook also assumes that leverage will not rise beyond forecasted levels, as the system increases capital spend and continues to explore growth opportunities.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Material improvement in cash to debt and days cash in excess of management's current forecasts- Maintenance of still strong operating cash flow margins as forecast- Continued gains in market share in central Florida; demonstration of clinical foothold in west Florida- Successful completion and opening of planned construction projectsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Moderation in days cash or cash to debt beyond forecasted levels due to higher than anticipated capital needs- Sustained downturn in OCF margins- Additional M&A that dilutes income statement or balance sheet metricsLEGAL SECURITYBonds are secured by a joint and several pledge of gross revenues of the obligated group which includes the parent and all wholly owned hospitals. In 2020, Orlando Health executed an Amended and Restated Master Trust Indenture that will spring into effect with approval of holders of 51% of bonds. Key provisions include a consultant call in if debt service coverage is less than 1.10 and an event of default after two consecutive years of debt service coverage below 1.0x; acceleration if requested by no less than 25% of bondholders; negative mortgage lien will remain in place. Covenant headroom will be adequate.USE OF PROCEEDSProceeds will be used for construction of a new Lake Mary hospital in Seminole County and to fund projects at the system's downtown campus.PROFILEOrlando Health, Inc. is the owner and operator of a regional healthcare system headquartered in Orlando, FL. The system is currently comprised of 10 wholly owned hospitals serving Orange, Seminole, Lake and Osceola Counties of central Florida. Total revenues were approximately $4.6 billion in fiscal 2021. Orlando Health offers a wide-range of tertiary and secondary services and is the only provider of level one trauma services in central Florida.METHODOLOGYThe principal methodology used in these ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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