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Rating Action: Moody's revises University of Colorado Hospital Authority's outlook to positive; Aa3 revenue bond ratings affirmedGlobal Credit Research - 26 Feb 2021New York, February 26, 2021 -- Moody's Investors Service has affirmed University of Colorado Hospital Authority's Aa3 rating, Aa3/VMIG 1 ratings based on self-liquidity and Aa3/VMIG 1 ratings supported by standby bond purchase agreements, affecting $1.1 billion of rated debt. (Total debt outstanding, including unrated debt, is $1.8 billion). The outlook has been revised to positive from stable.RATINGS RATIONALEThe rating of University of Colorado Hospital Authority's bonds (UCHA) is based on the credit profile of University of Colorado Health (UCHealth), which was formed in 2012 pursuant to a joint operating agreement between UCHA and Poudre Valley Health Care (PVHC), and is responsible for overseeing the operations of UCHA and PVHC. The obligated group consists of UCH, UCHA, PVHC, all 12 hospitals in the system, and other certain component units.The Aa3 long term revenue bond rating reflects the expectation that operating performance in fiscal 2021 (ending June 30) will remain favorable despite weaker than historical utilization, and that liquidity will remain very strong despite high levels of capital spending. University of Colorado Health (UCHealth) will continue to benefit from a large number of fundamental strengths, including: a reputation for clinical excellence and very high acuity offerings, particularly at the flagship academic medical center; a growing and extensive footprint throughout the State consisting of 12 hospitals and multiple outpatient sites; a large and diverse revenue base; good integration with the University of Colorado's (Aa1 stable) School of Medicine; and extensive physician relationships. UCHealth's main challenges include: historically high leverage (which has been improving and will continue to improve over the next two years); high levels of capital spending, including a new tower at the flagship campus; a high rate of organizational growth which may challenge system resources; material competition in most markets; and projected losses at certain newer facilities during their initial activation phase.Operations were impacted in 2020 by COVID-19, and the pandemic is expected to continue to have a moderating influence on margins in 2021. Nevertheless, overall performance remains strong, and results are likely to remain generally favorable going forward.The VMIG 1 short term rating on debt supported by UCHealth's self-liquidity is a function of UCHealth's ample liquidity coverage, and the presence of appropriate procedures in support of the administrative aspects of the program.The VMIG 1 short term rating on debt supported by standby bond purchase agreements reflects the agreements with - and the credit quality of - the corresponding banks.RATING OUTLOOKThe positive outlook reflects the expectation that liquidity and debt measures will improve considerably over the next two years, in part due to the expected pay down of debt and the absence of any new money offerings. Also, overall revenue growth and operating results are expected to remain strong.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Improvement of debt measures- Successful execution of the organization's current strategic agenda while maintaining overall strong operating performance and balance sheet measures- Short Term Self Liquidity: not applicable- Short Term SBPA: not applicableFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Material decline in operating performance- Material decline in liquidity- A significant increase in debt without commensurate growth in cash flow and liquidity- Short Term Self Liquidity: decline in coverage levels or in organization's ability to manage the program- Short Term SBPA: Moody's downgrades the short-term CR Assessment of the Bank or the long-term rating of the bondsLEGAL SECURITYBonds are secured by a gross revenue pledge of the obligated group, which includes UCHA, PVHS, Memorial Hospital Colorado Springs, and most operating entities. Neither the State of Colorado nor the University of Colorado are obligated on the bonds.PROFILEThe University of Colorado Health (UCHealth) is a nonprofit health system formed in 2012 by Poudre Valley Health System (PVHS, a nonprofit integrated delivery system formally headquartered in Fort Collins) and the University of Colorado Health Authority (UCHA, which is a political subdivision of the State of Colorado (Aa1 issuer rating) and serves as the teaching hospital for University of Colorado (Aa1 stable)). Shortly after formation, UCHealth entered into a long-term lease with the City of Colorado Springs to operate Memorial Health System. Subsequently, UCHealth built and acquired other various hospitals throughout the state of Colorado, and currently operates a total of 12 hospitals, predominately in the front range region. Altogether, UCHealth staffs over 1,850 beds, maintains over 100 outpatient care sites, and employs over 550 physicians.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 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. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. 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.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Eugene Spielman Lead Analyst PF Healthcare Moody's Investors Service, Inc. 405 Howard Street Suite 300 San Francisco 94105 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Daniel Steingart Additional Contact PF Healthcare JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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