S&P revises Mayo debt outlook to 'negative'

Standard & Poor's Ratings Services has lowered its outlook on debt issued by and for Mayo Clinic, citing Mayo's "weaker operating performance" in 2012 and unexpected debts.

"We revised the outlook to negative to reflect our opinion of Mayo Clinic's weaker operating performance, especially in the second half of 2012, and additional debt with this issue, which we did not expect and did not include in our last rating analysis," said S&P credit analyst Martin Arrick in a statement issued today. "In addition, Mayo Clinic had to absorb multiple impacts from a sharply lower pension discount rate for the second straight year that, in turn, drove large pension contributions limiting growth in unrestricted cash and investment and lowering unrestricted net assets while raising pro forma leverage to levels we consider high for the rating."

S&P reaffirmed Mayo's AA long-term rating on Mayo's $300 million series 2013 taxable bonds and reaffirmed ratings on other debt issued for, or guaranteed by, Mayo, according to the statement. The reaffirmed ratings were based on the clinic's "solid revenue growth," debt service coverage and growth in unrestricted reserves.

But the statement says Mayo's "overall leverage and unrestricted net assets were hurt by the very large pension charge for the second year in a row due to a lower discount rate. Nevertheless, net patient service revenues and revenues overall improved significantly, as did unrestricted reserves despite a large cash contribution to the pension plan."

Mayo officials have scheduled a news conference on Wednesday in Rochester to discuss its 2012 financial results.

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