Moody's Investors Service said it has upgraded HealthPartners, Inc.'s long-term bond rating to A2 from A3.

This action affects approximately $268 million of rated debt outstanding issued through the Housing and Redevelopment Authority of the city of Saint Paul, Minn., and a portion jointly with the city of Minneapolis. The outlook is revised to stable from positive at the higher rating level.

HealthPartners is a large integrated healthcare system. The system operates: (a) growing health plans with more than 850,000 medical members as of fiscal year end (FYE) 2012; (b) Regions Hospital, a sizeable tertiary referral center in Saint Paul, with more than 25,000 admissions in FY 2012; (c) two small rural hospitals in Wisconsin, Westfields Hospital and Hudson Hospital; (d) 97 bed Lakeview Hospital located in Stillwater, Minn., approximately 21 miles northeast of Saint Paul (HealthPartners affiliated with Lakeview in 2011); (e) Park Nicollet Health Services (PNHS), a hospital health system anchored by 366 bed Methodist Hospital in St. Louis Park, Minn., west of Minneapolis and a partial interest in St. Francis Hospital prior to combination (HealthPartners and PNHS combined effective January 1, 2013); and (e) a large multi-specialty physician group with approximately 1,500 physicians and more than 200 nurse practitioners (including PNHS's physicians).

The rating upgrade to A2 from A3 reflects HealthPartners' continued favorable operating performance in fiscal year (FY) 2012, the improved operating results at PNHS in FY 2012 (after a weaker FY 2011), and maintenance of very strong balance sheet and debt coverage ratios.

The stable rating outlook reflects the expectation that HealthPartners will maintain adequate operating margins and the combination with PNHS will occur without major disruption to performance. Moody's notes that HealthPartners' operating margins in FY 2011 and FY 2012 are not expected to be maintained and that the system faces competition for both its hospital operations and health plans.

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