Moody's Investors Service last week downgraded $1.1 billion of Catholic Health East debt to A2 from A1 due to cash-flow margins that fall below similar A-rated health care credits.

Moody's also revised the multi-state health care system's outlook to stable from negative.

Catholic Health East posted a fiscal 2010 cash-flow margin of 6.4% — up from 6.1% in fiscal 2009 — but below the 8.4% cash-flow median for multi-state, single-A health-care providers, according to a Moody's report.

"Fiscal year 2010 results, while an improvement over fiscal year 2009, represents weaker financial performance for the organization since fiscal year 2006," the report reads.

At the same time, Moody's revised CHE's outlook to stable as the system's cash position has improved. CHE also has "relatively" low debt levels.

Management's goal is to increase cash-flow margins to 10% by fiscal 2017. Recent fiscal changes include freezing defined benefit pension plans, selling Mercy Hospital in Miami, which took $120 million of debt off CHE's books, and a planned partnership of St. Joseph's Health System in Atlanta with Emory University Health.

"The senior management team has been expanded and maintains a heightened sense of urgency to address CHE's challenging markets and achieve stronger financial performance," according to the Moody's report.

Located in Pennsylvania and co-sponsored by different religious congregations, CHE has facilities in 11 eastern states from Maine to Florida, including 33 acute care hospitals, and 54,000 full-time employees.

Standard & Poor's and Fitch Ratings rate the system A and A-plus, respectively, both with stable outlooks.

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