UP Hospital Stabilizes

Moody's Investors Service revised its outlook to stable from negative on Marquette General Hospital, the Upper Peninsula's only tertiary-care provider. It also affirmed the hospital's Baa3 underlying and long-term revenue bond ratings.

The outlook change comes after a new senior management team raised MGH's operating performance and liquidity position in fiscal 2009, Moody's said. The hospital has $80 million of outstanding debt.

As the UP's largest hospital, MGH enjoys a 76.6% market share in Marquette County. In 2009 it saw an operating profit of $10.2 million, up from a $3.6 million operating loss in fiscal 2008. The improvement was due to several moves by the new management, including cutting 120 positions, saving money in supply contracts, reducing services, and selling a senior assisted-living facility, Moody's said.

Liquidity also has improved so far this year but remains thin for the rating category, analyst Mark Pascaris wrote.

The hospital still faces several challenges, including credit risks posed by the system's variable-rate demand bonds, which make up roughly 54% of its overall debt portfolio. A chunk of those bonds poses a possible liquidity risk tied to a standby bond purchase agreement from JPMorgan Chase Bank NA.

The hospital could see a reduction in its Medicaid funding if Michigan cuts the payments amid its own revenue woes. The average age of the system's facilities is 18.4 years, and management froze non-essential capital spending last year.

"We believe that as MGH's operating results continue to improve, long-term capital needs will be identified and spending will increase," Pascaris wrote. "MGH does not have near-term debt plans, although management may consider debt in the next two years depending on MGH's cash-flow generation and liquidity position."

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