CHICAGO -- Standard & Poor's says Children's Hospitals and Clinics of Minnesota could win an upgrade if its operations remain on the upswing.

The rating agency July 17 revised its outlook to positive from stable and affirmed its A-plus rating on debt from issues in 1995, 2004, 2007 and 2010.

"The outlook revision reflects our view of Children's improving operating performance and debt service coverage for the past year and a half coupled with a strengthening business presence and strengthening balance sheet," said analyst Suzie Desai.

The system's current rating reflects Children's very strong enterprise profile and very strong financial profile, SUP said, including its pediatric market share at 59.3% of the Minneapolis-St. Paul metro area in 2014. Children's has experienced balance sheet improvement that is reflective of increasing unrestricted reserves and decreasing debt levels, Standard & Poor's said. Cash flow provides maximum annual debt service of nearly six times and the hospital intends to pay down $12 million of debt with no new borrowing plans in the works.

"We anticipate that as management continues to focus on expense and revenue enhancements and on strengthening its key service lines and physician growth, Children's should be able to sustain its stronger operating performance and cash flow, which, coupled with decreased capital spending (after a period of heightened spending) will result in improved unrestricted reserves and operational liquidity," Standard & Poor's added.

Challenges include competition from University of Minnesota Masonic Children's Hospital and unrestricted reserves that are growing but still below rating medians.


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