CHICAGO - Moody's Investors Service Monday revised its outlook to stable from negative on two Illinois-based health systems in recognition of the benefits of their year-old move to join forces.
Moody's shifted its outlook on Edward Obligated Group's A2 rating to stable from negative. Moody's also affirmed Elmhurst Memorial Healthcare's Baa2 rating which impacts $283 million of outstanding debt and shifted its outlook to stable from negative.
The Edward action affects $241 million of debt. The outlook change was due to "management's ability to integrate Baa2 rated Elmhurst Memorial Healthcare and direct noticeable improvements at Elmhurst during the first full year of the Edward-Elmhurst Healthcare system without diluting combined system results," Moody's said.
On the Elmhurst change, Moody's said it reflects the agency's "expectation that Elmhurst will continue to benefit from its relationship with A2-rated Edward Obligated Group."
Edwards' credit benefits from a history of strong operating performance, favorable market position in a quality service area far west of Chicago, and good liquidity and debt coverage ratios. The combined Edward-Elmhurst system's adjusted operating revenue base now exceeds $1 billion, which is sizeable compared to the A2 median of $528 million, Moody's said.
The new system has manageable capital spending plans and no new money debt plans in the coming years. While the two have integrated operations, their debt remains separately obligated.
Elmhurst's credit benefits from the affiliation with Edward and improved operating results but is challenged by its high leverage. It operates just west of Chicago.
Edward and Elmhurst are challenged by considerable swap exposure, particularly Elmhurst with swaps on a notational amount of $430 million and Edward on $131 million. The system also faces tough competition from other hospitals.
Both use the Illinois Finance Authority to access the tax-exempt market.
