Nonprofit, nonpartisan journalism. Supported by readers.


Mayo Clinic’s debt outlook dropped to negative by S&P

The health care giant in Rochester has asked the state for help in a major expansion.

The debt outlook for Rochester’s Mayo Clinic has been dropped to “negative” by
Standard & Poor’s Ratings Services.

In a statement, S&P credit analyst Martin Arrick said:

“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. 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.”

The Rochester Post-Bulletin says Mayo officials will respond to the S&P announcement next week.

Article continues after advertisement

The giant health care concern has asked the state to help with a multi-billion-dollar expansion over the next 20 years. Some legislators haven’t embraced the proposal which calls for the state to fund $585 million in parking, transportation, utilities, bridges and other improvements, to be financed with bonds that would be repaid with the new taxes generated by the expansion.

The S&P report wasn’t all bad, the paper said:

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.”