Rating Action: Moody's assigns Aa2 to Mayo Clinic's (MN) Ser. 2021 Taxable Bonds; outlook stableGlobal Credit Research - 16 Mar 2021New York, March 16, 2021 -- Moody's Investors Service has assigned a Aa2 rating to Mayo Clinic's (MN) proposed $500 million Taxable Bonds, Series 2021. Bonds will be issued by Mayo Clinic and are expected to mature in 2061. At this time we are affirming the Aa2 and Aa2/VMIG 1 ratings on approximately $2.9 billion of outstanding debt. The outlook is stable.RATINGS RATIONALEThe Aa2 will be supported by Mayo Clinic's excellent market position, very strong clinical reputation and wide range of services which generate very strong patient demand at its three academic locations in Minnesota, Arizona, and Florida. The rating is further supported by meaningful geographic and revenue diversification among the three states and very strong balance sheet measures, including a large pool of restricted investments used to fund research and education activities. Excellent patient demand and proactive expense control measures fueled a strong recovery in the second half of fiscal 2020 allowing Mayo to generate margins comparable to prior years and close to budget. Going forward, we expect some retrenchment in margins as the organization invests in several strategic priorities, but that strategic positioning will remain excellent. Key challenges for the organization include a large and active pension plan that will continue to require higher cash funding levels so long as interest rates remain low and an operating model that incorporates investment returns to fund ongoing research and education expenses.Affirmation of the VMIG 1 reflects the credit quality of the bank providing liquidity and the long term Aa2 rating on the bonds.RATING OUTLOOKThe stable outlook reflects our expectation that strong patient demand and proactive steps by management will allow Mayo to maintain adequate cash flow and strengthen balance sheet measures despite near term investments that will reduce margins relative to prior expectations.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Considerable improvement in operating margins for a sustained period leading to materially stronger debt coverage ratios- Significant improvement in liquidity ratios- For the VMIG 1 rating: not applicableFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Inability to maintain positive Income from Operations, inclusive of investment returns used to fund research- Notably thinner liquidity ratios; prolonged period of investments losses- Weaker debt coverage ratios- Inability to maintain pension funding at approximately current levels- For the VMIG 1 rating: downgrade of Mayo's long term rating or downgrade of the bank providing liquidity's ratingLEGAL SECURITYBonds are an unsecured obligation of Mayo Clinic as obligor and guarantor, solely, and not that of any of the operating subsidiaries. We believe a Restricted Affiliate/Corporate Model obligation provides bondholders less protection than a joint and several obligation.There is a 1.1x rate covenant on privately placed debt, measured quarterly, based on the preceding 12 months.USE OF PROCEEDSThe Series 2021 bonds will be used for general corporate purposes and to pay the costs of issuance.PROFILEMayo is a large multi-site organization with academic medical centers in Minnesota, Arizona and Florida and a large network of community hospitals in Minnesota and Wisconsin. The system has a national and international draw for patients and engages in significant research and teaching activities.METHODOLOGYThe principal methodology used in the long-term ratings was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. The principal methodology used in the short-term rating 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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For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. 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