"We believe a downgrade into the BBB-category is possible,” said S&P Global Ratings analyst Martin Arrick said of the Catholic Health Initiatives A-minus rating watch.

DALLAS – Catholic Health Initiatives' A-minus rating is on the watch list for a possible downgrade from S&P Global Ratings.

CHI, one of the nation's largest nonprofit health-care providers, has seen its ratings fall in the past two years amid a rapidly changing health-care landscape.

Earlier this year, S&P downgraded CHI one notch to A-minus with a negative outlook on persistent and large operating losses, and what analysts considered to be weak maximum annual debt service coverage.

S&P's rating watch comes as CHI is considering a possible merger with Dignity Health, which operates primarily in California and Arizona.

"The CreditWatch placement reflects our receipt of CHI's fiscal year-end statements and commentary, which combined with other non-financial factors is reflective of continued on-going financial and operational problems," said S&P Global Ratings analyst Martin Arrick. "While some progress has been made on CHI's improvement plan, some slippage is also evident."

Arrick said analysts expect to meet with CHI management over the next 90 days to discuss the 2016 financial results and prospects for some kind of alignment with Dignity.

"We believe a downgrade into the BBB category is possible," Arrick said.

Arrick said the previous downgrade reflected a "meaningful drop" in unrestricted cash and investments as of Dec. 31, 2015, to "levels that were only adequate for an 'A-minus' rating," because they were well below comparable medians.

In related actions, S&P also placed its A-minus long-term rating on Brazos County, Texas Health Facilities Development Corp. debt on negative watch. The conduit issued bonds for Franciscan Health's obligated group.

Also on the watch list are Longmont, Colo. United Hospital's 2006 A and B hospital revenue bonds, currently rated BBB-plus.

Bonds for the Louisville, Ky. Medical Center laundry and water and steam plant, rated A-minus, were also added to the watch list.

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