Fitch assigns 'AA-' rating to UPMC bonds, outlook negative

Fitch Ratings has assigned an "AA-" rating to $350 million of series 2014A revenue bonds and $50 million of series 2014B revenue bonds issued to Pittsburgh-based UPMC and maintained the health system's negative outlook.

UPMC is the largest health system in Pennsylvania, with more than 20 hospitals and nearly 5,000 beds in the state.

The rating assignments were based on a number of factors, including UPMC's dominant market share in western Pennsylvania. The health system has a market share of approximately 61 percent in Allegheny County and a 42 percent market share in 10 of the surrounding counties.

UPMC generated $602.9 million cash flow from operations in fiscal year 2014, double the amount from the year before. In addition, UPMC has completed its major capital investments and plans to have a moderate level of borrowing over the next five years.

The maintenance of the negative outlook was based on heightened competitive environment for managed care in western Pennsylvania due to the formation of Allegheny Health Network. UPMC and health insurer Highmark, which manages Allegheny Health Network, have been embroiled in a longstanding turf war within the Pittsburgh metro area.

Going forward, UPMC must continue to have strong operating cash flow to maintain its bond rating. This will be dependent upon the health system executing a strategy to replace some of the expected loss of volume to Allegheny Health Network.

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