Cass County, North Dakota
- Issue Currency: United States of America Dollars
- Announcement Date: 10-Sep-2018
- News: S&P Global Ratings lowered its underlying rating (SPUR) to `A-` from `A` on Essentia Health Obligated Group, Minn.`s series 2008 revenue bonds, issued by various entities. In addition, S&P Global Ratings assigned its `A-` SPUR to Essentia`s $665.45 million series 2018A Minnesota fixed-rate, tax-exempt bonds and $39.97 million series 2018B North Dakota fixed-rate tax exempt bonds. The outlook is stable. In recent months, management has publicly provided more context on its extensive capital needs through fiscal 2022. Anticipated capital plans include a major project to transform Essentia`s Duluth campus (Vision Northland). Essentia plans to invest approximately $675 million to replace buildings at its downtown Duluth campus and another $95 million on capitalized interest over the three-year construction period and financing costs. The lowered rating reflects our assessment of Essentia`s large capital transformation project, associated project risk, and weaker financial metrics. More specifically, the adequate financial profile reflects lighter pro forma maximum annual debt service (MADS) coverage and weaker pro forma debt metrics. While the new debt will pressure the balance sheet, unrestricted reserves remain stable. In addition, we believe the overall credit profile benefits from Essentia`s fairly consistent historical operating performance. Although operating performance declined in fiscal 2017 and in unaudited fiscal 2018, we anticipate fiscal 2019 performance will improve as Essentia has implemented several revenue generating and cost reduction initiatives and has a history of delivering on results. The series 2018 bond proceeds and expected premium will go toward funding Essentia`s Vision Northland project ($565 million). In addition, the plan of finance assumes that Essentia will use approximately $110 million in equity to fund remaining project costs once the series 2018 proceeds have been expended (estimated around November 2021). The remaining proceeds from the 2018 issuance will go toward funding a capitalized interest fund ($84 million), costs of issuance, and refunding all of Essentia`s tax-exempt series 2008E bonds, series 2014 Minnesota bonds, and series 2014 North Dakota bonds.