NEW YORK - Moody's Investors Service said it has downgraded Elmhurst Memorial Healthcare, Ill.'s (EMHC) long-term rating to Baa2 from Baa1.

The outlook is revised to stable at the lower rating level.

This action affects approximately $497 million of rated debt outstanding. Rated debt includes Series 2008B, C, D,& E variable rate demand bonds (VRDB).

The Series 2008B VRDB bonds are supported by a letter of credit (LOC) from JPMorgan Chase Bank, N.A. (Aa1 long-term rating on Watchlist for possible downgrade, P-1 short-term rating).

The Series 2008C VRDB bonds are supported by an LOC from RBS Citizens, N.A. (A2 long-term rating on Watchlist for possible downgrade, P-1 short-term  rating on Watchlist for possible downgrade).

The Series 2008D VRDB bonds are supported by an LOC from The Northern Trust Company (Aa3 long-term rating, P-1 short-term rating). The Series 2008E VRDB bonds are supported by an LOC from Fifth Third Bank (A3 long-term rating, P-2 short-term rating). The LOCs expire May 22, 2013.

The rating downgrade to Baa2 reflects EMHC's modest operating performance in fiscal year (FY) 2011 and through six months FY 2012, EMHC's greater than expected decrease in cash position, and continued debt structure risks.

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 (on time and under budget, according to management) and factors our expectation that operating margins and cash position should improve in the second half of FY 2012 and into FY 2013.

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