S&P revises outlook on Mayo debt to 'negative'

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NEW YORK (Standard & Poor's) Feb. 20, 2013--Standard & Poor's Ratings Services
revised its rating outlook on debt issued by and for the Mayo Clinic, Minn. At
the same time, Standard & Poor's assigned its 'AA' long-term rating to Mayo
Clinic's $300 million series 2013 taxable bonds and affirmed its 'AA'
long-term ratings and 'AA/A-1+' and 'AA/A-1' dual ratings on various debt
issued for, or guaranteed by, the Mayo Clinic.

"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 Standard & Poor's credit analyst Martin
Arrick. "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," said Mr. Arrick.

Standard & Poor's affirmed the ratings based on its view of Mayo Clinic's
continued sound debt service coverage, growth in unrestricted reserves, and
solid revenue growth. The rating also reflects Standard & Poor's assessment of
Mayo Clinic's excellent enterprise profile highlighted by its international
reputation, integrated physician-led culture, strength in medical education
and research, all combined with a financial profile, that while strong is only
adequate for the current rating, especially after accounting for this
unexpected debt issue as well as the 2014 planned issuance.

Offsetting these credit strengths is Mayo Clinic's fiscal 2012 performance,
which was not as strong as fiscal 2011. 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. Volumes improved as well,
reflecting the addition of two medical centers to the system this past year
and general stable performance elsewhere in the system. Case mix remains
exceptionally high. Management has taken steps to curtail the pension funding
levels and other postretirement benefit liabilities but these actions only
partially offset the change in the discount rate. Standard & Poor's expects to
see these liabilities reduced over time and notes the pension plan is 84%
funded. 

Management also reports growth in expenditures that outstripped the growth in
revenues, in part, due to start-up costs of three centers of excellence that
will not produce net improvements in operating income for a few years combined with broader efforts to push centralized systems out to regional affiliates to create longer-term efficiencies despite short-term investments in staff. 

Standard & Poor's included the planned issue in 2014 of approximately $300
million in its rating analysis although operations would have to improve from
2012 levels and balance sheet trends would have to be positive to avoid a
downgrade and return to a stable outlook.