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���������ֳ� - Chicago - 07 May 2025: ���������ֳ� has assigned an 'A+' rating to approximately $423 million of series 2025A fixed rate revenue bonds, $110 million of series 2025B five-year put bonds, and $109 million of series 2025C seven-year put bonds to be issued by the Washington Health Care Facilities Authority (WHCFA) on behalf of MultiCare Health System (MultiCare). ���������ֳ� has also affirmed MultiCare's Issuer Default Rating (IDR) and existing revenue bonds at 'A+'.

The Rating Outlook is Stable.

The series 2025 bonds will be used to provide $150 million of new money debt to support MultiCare's capital spending, including $75 million of reimbursement for prior capex. The bonds will also refinance various existing debt outstanding, including series 2015A&B fixed rate bonds, series 2022C bank direct placements, and series 2020 taxable fixed rate bonds, and pay the costs of issuance. In total, approximately $641 million of par amount is expected to be issued, plus a bond premium of $28 million.

The bonds are tentatively expected to price on May 21, 2025, although management may issue as early as May 15 depending on market conditions.

MultiCare's 'A+' rating reflects the system's meaningful credit strengths anchored by its broad and growing market reach throughout the State of Washington, including its leading position in the Tacoma metro area. The Stable Outlook reflects that, despite compressed operating margins for the rating category, MultiCare continues to execute a trend of improving margins that ���������ֳ� expects while continue.

Operating margins in the first quarter of fiscal 2025 were compressed primarily because the state's Medicaid Directed Payment program has not yet received official approval from CMS. The Stable Outlook, and ultimately maintenance of the 'A+' rating, is contingent on MultiCare's ability to sustain ongoing operating improvements, despite margin pressure in Q1.

Management is committed to maintaining balance sheet strength while continuing to execute strategic initiatives and capital investments. ���������ֳ� expects MultiCare's operating EBITDA margin should rebound to at least the 6%-7% range, recognizing that fiscal 2025 will continue to be a transition period. Failure to sustain margin improvement or any weakening of balance sheet metrics could lead to negative rating action.

Despite operating losses in recent years, MultiCare continues to realize volumes gains. ���������ֳ� notes that the depth of operating challenges faced by MultiCare have not been unique to the system but were experienced by most acute care providers in Washington and Oregon.

SECURITY

The bonds are secured by a gross revenue pledge of the obligated group (OG). The OG comprises the vast majority of MultiCare assets and revenues. All hospitals are members of the OG, except Overlake Medical Center (which joined the system in October 2024). ���������ֳ�'s analysis is based on the consolidated MultiCare Health System.

KEY RATING DRIVERS

Revenue Defensibility - 'bbb'

Market Leader in Tacoma Area; Broad and Growing Statewide and Regional Reach

MultiCare has a broad statewide reach, operating 13 hospitals, including the most recent affiliate, Overlake. The system includes more than 300 clinics and urgent care centers in five regions with a presence in the state's major population centers. MultiCare is the clear market leader in the South Sound region (Tacoma area), capturing about 48%-49% share, which is ahead of CommonSpirit (IDR A-; under 30% share).

In the Inland Northwest Region (Spokane), Providence Health (IDR A) is the leader with just over 60% followed by MultiCare with about 37%. MultiCare is the number two provider in statewide market share capturing more than 20% share and growing, while Providence is the statewide leader at about 28%.

MultiCare's statewide presence continues to expand with the October 2024 Overlake affiliation, located just east of Seattle in Bellevue. Overlake is a 349-bed hospital. Like most hospitals in Washington, Overlake's operating margins were hit hard by the pandemic and subsequent macro labor and inflationary challenges, with steep operating losses in fiscal years 2022 through 2024. Despite this, Overlake benefits from a very strong payor mix with commercial/managed care accounting for more than 70% of revenue.

Demographics in MultiCare's regions are generally stable to favorable, which is enhanced by the Overlake affiliation. The system's payor mix is modestly weak due in large part to its children's hospital, which increases the systems exposure to Medicaid. Combined Medicaid and self-pay is consistently in the 27% range (26.6% in fiscal 2024).

Operating Risk - 'bbb'

Operating Losses Persist, but Margins Continue Steady Improvement

While operating results remain compressed and the system has recorded three consecutive years of operating losses, MultiCare's metrics continue to show steady trend of improvement. In audited fiscal 2024 (December 31 fiscal YE), MultiCare recorded an operating loss of -2.0% and operating EBITDA margin of 2.4%. This is improved over fiscal 2023 (-3.8% operating margin and 1.1% operating EBITDA margin) and much better than fiscal 2022 (-7.2% operating margin and -2.2% operating EBITDA margin). Maintaining this trajectory is a key consideration for preserving the 'A+' rating.

The sustained operating gains in fiscal 2024 were driven by many factors, including a reduction in the use and cost rate of contract labor and associated drop in employee turnover and vacancy rates. Additional contributors include a continued decline in average length of stay (ALOS, from 6.0 days in fiscal 2021 to 4.8 days in fiscal 2024), improved state Medicaid rates, continued focus on top-line revenue opportunities including ambulatory access points, and marked improvement at MultiCare's recent Yakima affiliate, which bodes well for turnaround opportunities at Overlake.

MultiCare also continues to benefit from robust volume growth, which was sustained even during the depths of sector operating challenges. Highlighted volume trends in fiscal 2024 include inpatient admissions (up 4.5% over fiscal 2023, and up 4.7% including observations), outpatient visits (up 22%), and surgeries (up 9.7%). Volume gains are due to a combination of recent affiliations and organic growth (the data noted here do not include Overlake).

The 'A+' rating and Stable Outlook reflect ���������ֳ�'s expectation that operating improvement will continue. Management expects the system to be profitable by fiscal 2026, inclusive of Overlake. Longer term, ���������ֳ� expects MultiCare to generate profitable operations and eventually return to an operating EBITDA margin at least in the 6%-7% range (recognizing that fiscal 2025 will continue to be a transition period). The system's operating margins were challenged in Q1 fiscal 2025, with an operating loss of -5.7% including Overlake (-5.5% excluding Overlake).

A key driver for the compressed margins in Q1 was the fact that MultiCare had not yet recorded funds from the Safety Net Assessment Program (SNAP), the State of Washington's Medicaid Directed Payment program. These funds would amount to approximately $54 million in Q1. The SNAP program has not yet been formally approved by CMS, although MultiCare reports positive communications from the state. While receipt of these funds should yield much better operating margins for the rest of fiscal 2025, this illustrates how sensitive MultiCare is - like much of the sector - to supplemental funding sources and therefore to potential changes in federal healthcare policy.

Capital Spending: MultiCare has continued to invest in its plant, despite the pandemic and subsequent macro pressures. Between fiscal years 2020 and 2024, the system's capital spending ratio averaged 1.6x (including 1.8x in fiscal 2024), and the average age of plant measured a sound 11.4 years at fiscal YE 2024. Elevated capex will continue in fiscal 2025 as MultiCare completes the bulk of work on the new children's hospital, after which the pace of spend should moderate closer to 1x.

Key ongoing projects include construction of a new freestanding Mary Bridge Children's Hospital (to open in early 2026) and continued outpatient access points (e.g., Indigo urgent care centers, of which MultiCare currently has 45 locations with additional in development). Management reports that the Mary Bridge Children's Hospital is on time and on budget, despite recent tariffs. MultiCare will not need to make significant capex investments at Overlake, as its new five-story facility opened in 2021 and Overlake already has the Epic EMR system.

In March 2025 MultiCare announced a letter of intent (LOI) with Kootenai Health in Post Falls, ID to develop a 12- bed micro hospital and ASC. While the joint effort does not include capital commitments from MultiCare, it represents the system's continued market expansion.

MultiCare has raised nearly $100 million in fundraising to support the Mary Bridge Children's Hospital project (compared to an original $60 million target). The system does not have new money debt plans beyond the current financing.

Financial Profile - 'a'

Strong Capital Ratios Should be Sustained, if Operations Continue to Rebound

MultiCare's financial profile remains strong in the context of its midrange revenue defensibility and operating risk assessments, and metrics should improve long term, even in a stress case, so long as operating margins continue to rebound.

MultiCare effectively has no debt equivalents. The system has frozen defined benefit (DB) pension plans, which combined were 111% funded relative to a projected benefit obligation (PBO) of just over $530 million at fiscal YE 2024 (���������ֳ� includes only the portion of DB plans below 80% funded when calculating adjusted debt). Consequently, MultiCare's adjusted debt (direct debt plus underfunded DB pension below 80%) is the same as direct debt, approximately $2.6 billion at fiscal YE 2024, including leases.

Net adjusted debt (adjusted debt minus unrestricted liquidity) remains favorably negative. Cash-to-adjusted debt was just over 110% at fiscal fiscal YE 2024. While cash-to-adjusted debt is somewhat modest for the rating category, MultiCare's capital-related ratios should improve in the long term, even in a stress scenario. In the forward-looking stress case, which includes the current financing, net adjusted debt returns to a favorably negative position by year three and cash-to-adjusted debt exceeded 120% by year four.

Neither liquidity nor debt service coverage represent an asymmetric risk to MultiCare's financial profile. Unrestricted cash and investments measured about $2.9 billion at fiscal YE 2024, translating to more than 180 days cash on hand (DCOH).

Pro forma, MultiCare's debt will be about 70% fixed rate, and another 16% will be in intermediate put bonds. Smoothed pro forma maximum annual debt service (MADS) is $121.7 million. Actual MADS is $300 million, with bullet payments. Pro forma MADS coverage based on fiscal 2024 results is 6.2x. Financial covenants included in the MTI, private placements, and most bank covenants include a minimum historical debt service coverage of 1.10x (consultant call-in) and 1.00x (event of default if for two consecutive years). The MTI and private placements do not include minimum cash on hand covenants, although the bank covenant includes a minimum 100 DCOH.

Asymmetric Additional Risk Considerations

There are no asymmetric risks affecting the rating.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--Failure to continue to sustain improved operating margins, particularly if profitability is not restored and the operating EBITDA margin does not rebound to at least the 6%-7% range in the next two-to-three years;

--Balance sheet compression, particularly if cash-to-adjusted debt were not expected to rebound to above 120%, including in a stress case.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--An upgrade is not likely in the Outlook period given ongoing operating margin compression and macro headwinds;

--Sustained rebound in operating margins such that the operating EBITDA margin is expected to be maintained in the 8% range or better;

--Successful completion of major capital projects, especially the Mary Bridge Children's Hospital;

--Material growth in unrestricted liquidity leading to improved cash-to-adjusted debt in-line with historical ranges, particularly if supported by the aforementioned sustained improvement in operating EBITDA margin.

PROFILE

MultiCare is an integrated regional system based in Tacoma, WA. The system operates 13 hospitals (including the October 2024 affiliation of Overlake), which includes a children's hospital, one behavioral health hospital and a JV behavioral hospital with CommonSpirit. In total, MultiCare has more than 2,900 licensed beds (including the JV hospital).

The system also operates a growing network of outpatient, physician clinic, off-campus emergency department, and behavior health locations throughout the major population centers in Washington, and more recently in Idaho. MultiCare's total operating revenue exceeded $5.8 billion in audited fiscal 2024.

Sources of Information

In addition to the sources of information identified in ���������ֳ�'s applicable criteria specified below, this action was informed by information from Lumesis.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ���������ֳ�'s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ���������ֳ�'s ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.

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APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Portfolio Analysis Model (PAM), v2.0.1 (1)

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