Moody’s Investors Service lowered Mercy Hospital, Iowa’s rating one level to A3 due to declines in its operating performance.

At the lower rating, Moody’s assigned a stable outlook. The action impacts $82 million of rated debt.

Moody’s said the system implemented a number of costly strategic initiatives aimed at aiding future growth and it did see some improvement last year although its operating margins remained below the median for the A2 rating category. 

Through the first nine months of fiscal 2013, the system has seem a “material decline” due primarily to physician turnover.

“The stable outlook reflects Mercy’s good market position in the demographically favorable service area of Iowa City and surrounding counties, and a very strong balance sheet position,” Moody’s wrote. Mercy has replaced key physicians and expects to return to break-even operating performance in its next fiscal year.

The system generates $177 million in operating revenue and saw nearly 8,000 admissions last year. It benefits from strong unrestricted cash and investments of $157 million and a favorable service area. It has no plans to borrow in the coming years.

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