Moody’s Investors Service last week downgraded Elmhurst Memorial Healthcare’s rating one notch to Baa2 due to the Illinois hospital operator’s modest operating performance for fiscal 2011 and the first half of fiscal 2012.

The action affects $500 million of debt. The rating agency assigned a stable outlook at the lower level.

“The stable outlook at the lower rating level reflects the fact that EMHC is beyond construction risks, as the new replacement hospital opened in June 2011 and factors our expectation that operating margins and cash position should improve in the second half of fiscal year 2012 and into fiscal year 2013,” Moody’s analysts wrote.

The hospital’s challenges include market risks, with nearly half of its debt in a variable-rate mode supported by four bank of letters of credit.

Elmhurst is experiencing increased volume and benefits from its location in a favorable service area, just west of Chicago.

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