CHICAGO — Moody's Investors Service last week boosted its outlook to stable from negative on the Cleveland Clinic Health System in part because the prestigious system has scaled back some of its ambitious capital program.

CCHS has roughly $2.4 billion of outstanding bonds. Moody's affirmed its Aa2 rating on the system. Standard & Poor's rates it AA-minus with a stable outlook.

One of the country's top hospital systems, the Cleveland Clinic enjoys a strong international reputation and top market position in northeast Ohio. Its reputation is considered one of its fundamental credit strengths.

The clinic's capital program includes a number of expansions and new facilities aimed at increasing its volume and decreasing risks associated with the region's weak economy. The bulk of its business comes from Ohio, but it is working to diversify and expand beyond the state.

Moody's revised its outlook to negative in August 2009 as CCHS prepared to enter the market with $800 million of new-money and refunding bonds. The $500 million new-money deal included about $250 million that originally was to be issued in 2010, but the finance team opted to sell it a year ahead because of favorable market conditions.

Moody's analysts at the time warned the increased debt issuance could lead to ratios below the Aa2 category.

Since then, CCHS has postponed or scaled back plans for a new ambulatory center and possibly an inpatient tower. It cut spending by 35% in 2008 and 25% in 2009, and has also scaled down 2010 spending plans, Moody's said.

It's unclear whether the clinic plans to enter the bond market this year. A spokesman did not return phone calls by press time.

The system's current capital program calls for spending at least $750 million in both 2011 and 2012. Large projects include construction of two new large health centers scheduled to open next year.

In boosting the outlook back up to stable last week, Moody's cited a number of positive financial improvements and noted that the system has canceled or delayed several large projects.

"The system has shown an ability to significantly cut back on capital over the last several years as needed to preserve liquidity," Moody's analyst Lisa Martin wrote in a report announcing the shift in outlook.

The system's higher-than-average leverage will likely prohibit a ratings upgrade over the near term, and an increase in debt could lead to a downgrade, Martin warned.

Analysts noted that the system enjoyed an "exceptional" year in 2009, due largely to new capacity at the system's flagship facility, the Cleveland Clinic Foundation. Volume at the facility rose significantly.

The clinic's $2.4 billion debt portfolio includes 27% in a variable-rate mode, much of that supported by self-liquidity. The system enjoys strong 400% cash-to-puttable debt ratio, Moody's said.

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