Standard & Poor's Ratings Services has revised its rating outlook to positive from stable and affirmed a 'AA-' rating on debt issued for the world-renowned Mayo Clinic.
S&P also affirmed other ratings on bonds issued on behalf of the Rochester, Minn.-based clinic.
S&P credit analyst Stephen Infranco said the clinic's liquidity levels are still below similarly rated organizations, and would not provide the needed financial cushion at a higher rating level. The ratings firm considers the Mayo Clinic's asset allocation to be aggressive, with approximately 50 percent of its long-term funding in alternative assets.
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"While the earnings improvement over a one-year period is encouraging, we expect Mayo Clinic to demonstrate the ability to sustain earnings at the current level in order to achieve a higher rating," said Infranco.
Further mitigating the Mayo Clinic's credit strengths, Infranco said, is its potential exposure to future Medicare and Medicare physician reimbursement reductions.
"Given Mayo Clinic's aggressive asset allocation, a higher rating would be considered only if there is further improvement in balance sheet strength, particularly liquidity, to provide greater flexibility during times of operating stress," he said.
S&P believes the Mayo Clinic could achieve a higher rating if earnings and cash flow can generate strong MADS coverage and sufficient reinvestment for plant, equipment and programs, while allowing for further cash accumulation to boost liquidity beyond current levels.
Infranco said future rating action would hinge on more clarity regarding potential healthcare reform on a national level and the effect it could have on the Mayo Clinic's operations.
In addition to the Mayo Clinic debt rating, S&P revised its rating to 'AA-' from 'AA-/A-1+' on the Wisconsin Health and Educational Facilities Authority's series 2008 bonds issued for Luther Hospital, Wis., with a guaranty from the Mayo Clinic, following the conversion of the series 2008 bonds to fixed-rate from variable-rate demand bonds.