Rating Action: Moody's affirms Cleveland Clinic Health System Obligated Group's (OH) Aa2; stable outlookGlobal Credit Research - 28 Apr 2021New York, April 28, 2021 -- Moody's Investors Service has affirmed Cleveland Clinic Health System Obligated Group's (CCHS) Aa2, Aa2/VMIG 1 and P-1 ratings. The outlook is stable. CCHS's total debt outstanding is approximately $5.2 billion.RATINGS RATIONALEThe Aa2 affirmation reflects Moody's view that Cleveland Clinic Health System Obligated Group's (CCHS) strength as an international brand will allow the system to grow revenue outside of the constrained northeast Ohio market and offset the impact of the pandemic on volumes. Moody's expects CCHS's centralized and integrated governance structure will help the system maintain good cashflow margins while managing execution risks related to its London expansion and ongoing integration of Florida acquisitions. Efforts to increase access will help the system sustain a rebound in volumes seen in March, following sizable declines during the recent winter surge. Liquidity will remain very strong because cashflow and exceptional fundraising capabilities will support an expected increase in capital spending and Medicare advances have already been repaid. Leverage will remain moderately high due to CCHS' prior use of debt to fund strategies. Organic growth will be limited given the system's current concentration in northeast Ohio and competition from a large system. In addition, CCHS will face heavy competition from multiple large and well financed providers in Florida.The P-1 commercial paper rating and VMIG 1 bond rating on self-liquidity obligations are based on the system's strong debt and treasury management and strong liquidity to pay maturing commercial paper notes or unremarketed bonds. The affirmation of the VMIG 1 ratings on bank-supported obligations are based on standby bond purchase agreements provided by banks.RATING OUTLOOKThe stable outlook reflects Moody's expectation that operating cashflow margins will be close to 10% in fiscal 2021 as growth strategies and cost reductions will offset volume shortfalls in January and February. Strong liquidity will remain relatively stable given cashflow will mostly fund capital spending and repayment of FICA deferrals will be manageable. While leverage will be elevated, Moody's expects operating leverage will improve with growth in absolute cashflow and assuming no material increase in debt this year.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Material and sustained deleveraging of the balance sheet and operations- Meaningful revenue and geographic diversification to reduce exposure to northeast Ohio- Significant and sustained increase in operating cashflow margins- For short-term ratings, not applicableFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Large increase in leverage and weakening of debt metrics- Notably dilutive acquisition or merger- Sustained decline in cashflow margins below historical average- Adverse development of geopolitical issues, affecting international strategy- Material impairment to reputation- For short-term ratings on self-liquidity obligations, downgrade of long-term rating or material reduction in liquidity; For short-term ratings with bank support: downgrade of the short-term CR Assessment of the banks or a multi-notch downgrade of the long-term rating of the bondsLEGAL SECURITYCleveland Clinic Health System Obligated Issuers grant a security interest in their gross receipts to all outstanding parity notes under the Master Trust Indenture. The CCHS Obligated Issuers include The Cleveland Clinic Foundation, Cleveland Clinic Avon Hospital, Cleveland Clinic Health System-East Region, Fairview Hospital, Lutheran Hospital, Marymount Hospital, Inc., Medina Hospital, Cleveland Clinic Florida (a nonprofit corporation), Cleveland Clinic Weston Hospital Nonprofit Corporation, and Martin Memorial Medical Center, Inc. The Restated Master Trust Indenture, effective with the issuance of the 2019 bonds, includes an allowance for the substitution of notes or replacement MTI without bondholder approval.PROFILECCHS ($10.6 billion in total revenue in fiscal 2020) is the leading provider of healthcare services in northeast Ohio and draws patients internationally. As of December 31, 2020, the System operates eighteen hospitals with approximately 4,800 staffed beds. Thirteen of the hospitals are operated in northeast Ohio, anchored by the Cleveland Clinic's main campus hospital located on the near east side of Cleveland. The Health System operates twenty-one outpatient Family Health Centers, eleven ambulatory surgery centers, as well as numerous physician offices, which are located throughout northeast Ohio. In Florida, the System operates five hospitals located throughout Southeast Florida. In addition, the System is constructing a wholly-owned 184-bed hospital in central London.METHODOLOGYThe principal methodology used in the long-term ratings was Not-For-Profit Healthcare published in December 2018 and available athttps://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632.The principal methodology used in the short-term underlying ratings was Short-term Debt of US States, Municipalities and Nonprofits Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1210749. The principal methodology used in the short-term enhanced ratings was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017 and available at https://www.moodys.com/ researchdocumentcontentpage.aspx?docid=PBC_1057134. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.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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