CHICAGO – Hazelden Betty Ford Foundation was dropped from the single-A category by Moody’s Investors Service as it struggles with slower than expected fiscal operational gains and other healthcare sector headwinds.

The downgrade to Baa1 from A3 and assignment of a negative outlook affects $57 million of debt sold through Center City, Minnesota.

Slower-than-anticipated operating improvements and difficulties in managing a shifting payer mix and a failure to resolve an issue with its electronic health records “have hindered the foundation's ability to substantially improve its covenant headroom,” Moody’s wrote.

The foundation’s rating is anchored by its strong market position and broad geographic coverage as the nation’s largest not-for-profit provider of substance abuse treatment, with facilities in geographically diverse markets and multiple lines of business.

“The rating is further supported by moderate operating flexibility and dedicated fiscal management which has begun to take substantial expense cuts to improve cash flow through fiscal year end 2017,” Moody’s added.

The bonds represent an unconditional obligation of Hazelden Betty Ford Foundation but are not supported by a debt service reserve fund or a mortgage pledge.

The system was established with the merger of two prominent clinics in 2014 -- the Minnesota-based Hazelden Foundation and the Rancho Mirage, Cal.-based Betty Ford Center.

The merger was expected to hurt margins due to integration costs but then bolster operations. The system offers licensed residential treatment facilities, outpatient programs, and prevention and children's programs in nine states.

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