CHICAGO – Moody’s Investors Service placed Methodist Medical Center’s A2 rating on review for a potential upgrade in anticipation of the hospital becoming part of the higher rated Iowa Health System’s obligated group.

The action affects $51.2 million of outstanding debt issued through the former Illinois Health Facilities Authority.

Methodist Medical Center of Illinois is expected to join Iowa Health System’s parent organization by the end of the year. The Iowa system which does business as UnityPoint Health is rated Aa3.

If Methodist’s bonds are then put on “parity to the obligations of IHS, there will be upward credit pressure on MMCI’s rating,” Moody’s said. “In the event that this transaction does not occur, MMCI’s bond rating would be based on its own underlying credit fundamentals.”

The Iowa system and Methodist formed a partnership in 2011. MMCI has benefitted from access to funding for capital expansion projects, and expertise with regard to physicians, strategy and operations even though its debt remained its own, Moody’s said.

It is also anticipated that Proctor Hospital, which carries a B2 and is under review for an upgrade, will become a wholly owned subsidiary of MMCI after MMCI joins the obligated borrowing group of IHS. Management reports MMCI’s debt would likely be brought to parity with existing IHS debt by end of November 2013.

Fitch Ratings and Moody’s revised their outlooks this spring on Methodist’s ratings to positive from stable in recognition of its improved operating performance. Fitch rates Methodist A.

The hospital’s challenges include competition from three nearby hospitals and a reliance on one employer, Caterpillar, although its market share has been relatively stable since 2005, Fitch wrote in its spring release.

Methodist had intended to build a replacement facility for its 329-bed medical center located in Peoria, but has scaled back its plans to renovate and expand its main campus and outpatient diagnostic center. The hospital had revenues of $362 million in fiscal 2012.

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