Moody's Investors Service downgraded the Health Alliance of Greater Cincinnati to A2 from A1 after two hospitals separated from the five-hospital system and two more have said they intend to leave. The outlook remains negative.

The move affects $122 million of bonds issued in 2001, but the downgrade reflects only the credit profile of Health Alliance, not an analysis of the bonds' legal security, Moody's said. The bonds are insured by Financial Security Assurance, now Assured Guaranty Municipal Corp.

Health Alliance maintains an interest-rate swap on the $122 million of debt, whereby it receives a fixed rate and pays a variable rate of the BMA swap index plus 25 basis points, as well as a second swap on roughly half the debt in which the system pays a fixed rate of 3.3%. Health Alliance paid off about $43 million of debt with cash last month, reducing its overall portfolio to $122 million. The low level of debt as well as its fixed-rate debt structure is one of the system's strengths, according to Moody's.

In 2009, Christ Hospital and St. Luke's left, leading to a decline in the system's market share and cash. Operating margins have declined recently, in part due to start-up costs from a new medical center.

Two other hospitals said they also intend to leave the system, which could further strain its balance sheet. That would leave the system with only the University of Cincinnati's University Hospital as an cute-care provider, and a market share of under 13%, analysts warned.

"At this time, there is a high degree of uncertainly regarding the system's future composition and financial position; as a result, we are maintaining a negative outlook and expect to reassess the current rating later this year," analyst Lisa Martin wrote. "The A2 rating is currently supported by the system's very low debt level and minimal risks associated with debt structure and investment allocation."

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