CHICAGO — Better operating margins helped win Missouri-based Mercy Health a stable outlook from Moody's Investors Service.

Moody's on Dec. 4 affirmed the system's Aa3 rating while shifting its outlook to stable from negative on $874 million of debt.

"The outlook revision to stable from negative reflects Mercy's improved operating margins in fiscal year 2015 and our expectation that Mercy will generate margins more adequate for an Aa3 health system," Moody's wrote in the report.

The rating recognizes Mercy's improved results over 2014 levels, the size and scope of operations covering multiple markets in four states, and its track-record of profitability. "Mercy's margins and debt ratios remain somewhat modest at the Aa3 rating level," Moody's added.

Materially improved operating margins for multiple years that lead to stronger debt coverage ratios could drive an upgrade while a failure to maintain the improved operating, debt service coverage and liquidity ratios could drive a downgrade.

Mercy operates 29 owned or leased acute care hospitals in Missouri, Oklahoma, Arkansas, and Kansas. The system also includes specialty heart and rehabilitation hospitals and an integrated physician practice with more than 1,600 employed physicians. Mercy's bonds are secured by an unrestricted gross revenue pledge of Mercy Health and certain subsidiary operations under a restricted affiliate structure which Moody's views as less secure for bondholders as a joint and several obligation.

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