CHICAGO — Elgin-based Sherman Health System has signed a letter of intent to join Illinois’ largest nonprofit health care system, Oak Brook-based Advocate Health Care.

“Sherman is pursuing a partnership that will combine the resources of one of the nation’s top community hospitals with one of the nation’s leading health systems,” Rick Jakle, chairman of Sherman’s board, said in a statement Tuesday announcing that the board had voted to sign an LOI to join Advocate.

After a due-diligence period, the deal is expected to close in May or June.

Details on how the merger would impact Sherman’s $285 million of outstanding debt were not disclosed.

The 255-bed Sherman is one of the few remaining independent providers in the region while Advocate has been on a march to grow by acquiring hospitals. Advocate operates 10 acute-care hospitals in the Chicago area and two children’s hospitals, along with various home health and hospice centers, outpatient centers and physician services.

The merger would allow Sherman to join a larger and better-rated network of hospitals while the acquisition would further extend Advocate’s reach into the fast-growing far west and northwest Chicago suburbs.

The union marks the latest in a wave of national hospital consolidations among health care providers as they grapple with the impact of national health care reform. Nowhere has that trend been more prevalent than in Illinois.

Sherman suffered a series of downgrades after it more than doubled its debt in 2007 to finance the new facility, which opened in late 2009. The hospital’s balance sheet has since stabilized.

Standard & Poor’s affirmed the system’s BBB rating and stable outlook earlier this month.

“The rating reflects our view of SHS’ ability to outperform its budget for the past two years. Also, SHS has seen an increase in revenue and market share since the opening of the replacement hospital, but had no major cost-cutting initiatives in place during fiscal 2012,” analysts said.

Moody’s Investors Service affirmed Sherman’s Baa2 rating and stable outlook in March. The rating reflects “Sherman’s continued financial and operational improvement, including high increases in volume and improved cash flow, following the completion of its new hospital facility,” Moody’s wrote. “However, the rating is tempered by a leveraged balance sheet and vulnerability to modest shifts in cash flow.”

Sherman enjoys a leading 28% market share in its primary service area but faces competition from several facilities. All of its debt is in fixed-rate mode.

Advocate issued new-money and refunding bonds last year. It holds a leading market share of 15.4% in the Chicago region and carries ratings in the mid-double-A category from all three major rating agencies on nearly $1 billion of debt. It also has top short-term marks on floating-rate debt for which it provides self-liquidity.

Last year in its review, Fitch Ratings said its rating reflects Advocate’s low debt burden, strong operating profitability and leading market position. Moody’s said the system benefits from sustained improvement in operating margins, moderate debt levels and a well-funded pension plan.

“The AA long-term ratings reflect our view of AHCN’s good financial profile, good balance-sheet measures, leading market share, and position as Chicago’s largest and most successfully integrated health delivery system,” Standard & Poor’s said.

Advocate’s facilities generated $4.4 billion of revenue last year while Sherman generated $308 million.

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