Moody’s Investors Service has revised its outlook on the OSF Healthcare System’s A3 rating to positive from stable in recognition of improved operating performance and market share.

The action impacts $749 million of debt, including the system’s planned $164 million sale through the Illinois Finance Authority.

The system benefits from its large size, with multiple sites and expanding presence in several markets in northern and central Illinois, leading market share in its largest markets, and improved performance. It operates eight hospitals — seven in Illinois and one in Michigan.

The revision “reflects stable or notable growth in market share in the three largest markets and a second year of improved operating margins as the system begins to see the benefits of recently completed facility and information systems strategies,” analysts wrote.

Challenges remain a higher-than-average leverage relative to the rating category, economic struggles in several regions, competition in most markets, and ongoing delays in state Medicaid payments. Medicaid accounts for 15% of fiscal 2011 revenues, compared to a median of 12% for the rating category.

The system’s facilities, including its flagship Saint Francis Medical Center in Peoria, generate nearly $2 billion in operating revenue annually. Unrestricted investments are growing and are adequate, providing 163 days’ cash on hand.

Fitch Ratings affirmed the system’s A rating and stable outlook ahead of the sale. Proceeds will refund existing bonds, refinance outstanding lines of credit and raise new money for projects.

“OSF’s future capital needs are modest with no large projects projected in the near term,” Fitch wrote.

Total capital spending for fiscal 2012 and 2013 is projected at $125 million and $110 million, respectively.

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