LOS ANGELES — Moody's Investors Service affirmed Loma Linda University Medical Center's Baa3 revenue bond rating on Oct. 17, affecting $329 million of rated debt issued by the City of Loma Linda, Calif.. LLUMC has $731 million in debt.

The outlook remains negative.

"The maintenance of the negative outlook reflects LLUMC's current operational challenges, coupled with its perennially challenged balance sheet measures," Moody's analysts said.

The hospital avoided a downgrade, analysts said, because of indications from the second half of fiscal year 2014 that core operating results are improving. Operating losses at its Murrieta, Calif. hospital are improving and are expected to drop to $10 million in fiscal year 2014 from $50 million in fiscal year 2012.

"The affirmation of the Baa3 rating and the maintenance of the negative outlook reflect ongoing weak and variable operating performance continuing through fiscal year 2013 and through the first six months of fiscal year 2014 that ended June 30," analysts said in the report.

Although the economic picture is improving in California's Inland Empire, economic pressures are continuing to act as a drag on the hospital's operating results, analysts said.

Among the challenges faced by the hospital system are continued losses at Murrieta Hospital and the $800 million cost to replace the hospital system's flagship facility in Loma Linda, anticipated to occur within the next six years.

Strengths cited by analysts include its strong ties to Loma Linda University, its strong market position within San Bernardino County, and stability achieved through the organization's size, breadth of clinical offerings, and reputation. Moody's report took into account a $202 million increase in direct debt resulting from the refinancing of Murrieta Hospital's facility lease with a bridge loan.

"As the facility lease was already incorporated into our credit view, comprehensive debt remains mostly unchanged by the transaction, although direct debt measures do increase significantly," analysts said. "Long term financing is expected to be put in place before the end of the year."

LLUMC, an 815-bed acute care teaching hospital located 60 miles east of Los Angeles, is part of a conglomerate that includes four hospitals - University Hospital, Children's Hospital, East Campus Hospital, and the Heart and Surgical Hospital.

The academic medical center maintains a leading market position and its market share is expected to increase based on the opening of its new 106-bed hospital in Murrieta, according to analysts.

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