Community Medical Center in Missoula, Mont., maintained its Baa2 rating, but received a negative outlook on Dec. 19 from Moody's Investors Service impacting $24.9 million in debt.

The outlook applies to $24.9 million of outstanding Series 2010D and Series 2010E fixed rate revenue bonds issued by conduit issuer Montana Facility Finance Authority.

The series 2010D bonds also carry an enhanced rating of Aa3 based on the Montana Board of Investment's irrevocable pledge to pay principal and interest on bonds if amounts in the debt service reserve bond fund should not be enough to meet debt service.

The revision in the outlook from stable to negative reflects weak operating performance through the first four months of fiscal 2014, analysts said.

The rating affirmation is based on CMC's maintenance of adequate liquidity and debt coverage; and favorable market position as an essential provider and regional referral center for women and children's services in western Montana. The hospital is the only one that offers obstetrics, newborn services, and pediatric and pediatric intensive care services in the region. It is also only one of three hospitals in the state that offer high risk OB services and operates a Level III neonatal intensive care unit.

Despite these competitive advantages, Moody's said the hospital operates in a competitive and splintered marketplace with its primary competitor, 207-licensed-bed St. Patrick Hospital, owned by Providence Health and Services of Washington, located five miles north.

The rating is constrained by CMC's small size, larger-than-average Medicaid load, and a competitive market.

The declines in operating performance were attributed to weakening payor mix, volume declines, and challenges with the implementation of electronic medical record system in the hospital, according to Moody's analysts.

The medical center has a conservative fiscal structure with all fixed-rate debt and no interest rate swaps.

It operates a defined contribution retirement plan which limits unexpected demands on liquidity.

The rating could be downgraded if performance does not improve, debt coverage measures weaken further, or if liquidity declines.

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