CHICAGO — Moody’s Investors Service has raised its rating on $160 million of Alexian Brothers Health System’s still outstanding bonds after its acquisition by Ascension Health Alliance.

Moody’s upgraded Arlington Heights, Ill.-based ABHS’s rating one notch to A2 from A3, primarily due to its inclusion in the larger, Aa1-rated St. Louis-based Ascension system.

Ascension this past spring redeemed a good portion of Alexian Brothers’ $450 million of variable-rate and fixed-rate securities, eliminating the system’s bank credit risks.

Investors owning $162 million of bonds issued in 2005, 2008 and 2010 opted to keep their holdings.

Ascension finance officials said a refunding of the remaining debt was not economical due to its structural features. The debt remains outstanding and guaranteed by Alexian Brothers only. It is secured by a pledge of the unrestricted receivables of the obligated group.

The Alexian system includes Alexian Brothers Medical Center in the Chicago suburb of Elk Grove Village and St. Alexius Medical Center in suburban Hoffman Estates; a behavioral hospital, a rehabilitation hospital, and smaller facilities in Milwaukee and Tennessee.

The hospitals see 44,000 inpatient admissions annually and generate revenues of $1 billion.

Ascension — the largest nonprofit health care system in the nation — is now the sole corporate member of Alexian Brothers but is not obligated on the remaining debt. Still, ABHS’s inclusion in the Ascension system has credit benefits that helped drive the upgrade along with Alexian’s improved operating margins in fiscal 2011.

ABHS holds a leading market share of 51% in its primary service area.

“While Ascension is neither obligated on nor providing a guarantee for ABHS’s remaining debt outstanding, we view the acquisition as a key credit strength for ABHS and a considerable factor in the upgrade of ABHS’s rating,” Moody’s wrote. “ABHS should benefit from the integration of support functions, including supplies purchasing, centralized debt and investment management, and group insurance savings.”

Alexian’s challenges remain competition in its primary service area from eight hospitals and relatively high capital spending projections that may strain its already modest balance-sheet measures for its rating level.

The acquisition of ABHS at the start of the year allowed Ascension to extend its national reach into the Chicago region. Alexian sought deeper pockets to address capital needs and manage federal health care reform.

Ascension is the nation’s largest nonprofit health care provider, with 68 acute-care hospitals and nine specialty hospitals operating in 20 states and the District of Columbia with more than 15,000 beds.

The system generates $15.5 billion in annual operating revenue and has more than $4 billion of outstanding debt. Ascension carries ratings of AA-plus from Fitch Ratings and Standard & Poor’s.

Ascension and California-based Daughters of Charity Health System earlier this year announced the signing of a memorandum of understanding expected to lead to Daughters and its six hospitals joining Ascension.

Separately, last year Ascension formed Ascension Health Care Network — a joint venture partnership with the private-equity firm Oak Hill Capital Partners — to provide alternate funding for the acquisition of Catholic hospitals and other facilities.

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