CHICAGO - Moody's Investors Service revised its outlook on HealthEast Care System's junk bond rating to positive, signaling the Minnesota system could see a return to investment grade if its fiscal performance remains on track.
The rating agency Feb. 26 affirmed the Ba1 rating, one notch below an investment grade level. The action impacts $202 million of outstanding debt issued by the St. Paul Housing & Redevelopment.
"The outlook revision to positive reflects the organization's improved financial performance in fiscal 2013 and our expectation that the organization will continue to meet or exceed its budgeted operating margins in FY 2014 and beyond," Moody's wrote.
The system has seen material growth in cash and investments in recent years, benefits from a leading local market share of 32% and a conservative capital structure, and a new management team has met or exceeded a budgeted 3% operating margin.
Those positive factors are challenged by the upcoming installation of a new electronic medical record system, which is expected to result in a reduction in cash and weaker financial performance in fiscal year 2014.
"The system-wide implementation of the new EMR technology poses major operational risks, particularly given the organization's low levels of liquidity. The positive outlook reflects our expectation that liquidity levels and financial performance will return to higher levels in fiscal 2015," analysts said.
The system also faces stiff competition from other systems in the region and its liquidity levels remain low.
