CHICAGO — Moody’s Investors Service last week raised its ratings on St. Louis-based Ascension Health, the country’s largest nonprofit health system, due to its steady fiscal strides even as it navigated challenging mergers, occasional struggles in individual markets, and what has grown to an annual $1.2 billion capital program.

Moody’s upgraded the system’s senior debt to Aa1 from Aa2 and its subordinated debt to Aa2 from Aa3. The system, which operates 73 hospitals in 20 states and the District of Columbia, has a total of $4.3 billion of outstanding debt on its books. Moody’s rates only one other health system at one notch below top marks — Utah-based Intermountain Health Care — and none are rated Aaa.

The rating agency placed a positive outlook on the credit last February. The outlook at the higher credit is stable. Ascension carries a AA-plus and AA on its senior and subordinate debt from Fitch Ratings and an AA and AA-minus, respectively, from Standard & Poor’s.

Moody’s analysts raised the rating in recognition of the system’s solid finances built upon the diversity and prominence of its hospitals, which generate the bulk of more than $12 billion in operating revenues annually. The system’s hospitals, for the most part, hold significant market shares in their service areas.

The system has steadily seen its cash levels grow, generating more than $1.5 billion in total cash flow annually. Its strong liquidity position, boosted by $6 billion in unrestricted investments that provide strong debt coverage, give the system the flexibility needed to manage its large capital program. The program rose to about $1.2 billion in annual spending last year from a traditional level of about $600 million, analysts wrote.

“We believe Ascension Health’s ability to grow operating cash flow for an impressive nine consecutive years, despite expense challenges and problems at individual hospitals in each year, demonstrates the system’s focus on operations,” wrote analyst Lisa Martin.

Analysts also credited management for system-wide strategies such as quality initiatives, statewide managed care contracting, and streamlined management of construction projects that have helped improve the system’s balance sheet.

The system faces some concentration risk with its 16 hospitals in the struggling Michigan market which accounted for 20% of Ascension’s operating revenue in its last fiscal year. In other markets too, the system faces some competitive risks from other prominent facilities.

Ascension’s other challenges include a slightly higher-than-average ratio of debt leverage and a capital program that calls for between $1.2 billion to $1.3 billion in annual spending for the next five years. The system has no immediate plans to issue new debt.

“We are using a combination of cash flow and cash on hand to pay for capital projects,” said Ascension’s assistant treasurer Steve Gilmore.

The finance team is keeping a close eye on the price of its auction-rate debt as its interest rates have gone up in recent months. About $700 million carries insurance from MBIA Insurance Corp. and another $350 million is insured by Ambac Assurance Corp. The debt is remarketed every 35 days and has not gone through a reset period since Fitch stripped Ambac of its triple-A last week. “We are watching the market but it’s too early to say whether we will take any action” such as converting to another mode, Gilmore said.

Ascension, considered one of the more sophisticated health care issuers, last sold debt in late 2006 in a $900 million deal. The transaction included a series of complex swaps and a mixed floating- and fixed-rate structure and a chunk of debt that was privately placed with two Wall Street firms. About $2.5 billion of the system’s debt is tied to various swaps.

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