CHICAGO — Moody’s Investors Service Thursday lowered its rating on Ohio-based Mercy Medical Center to its lowest investment-grade level — and revised its outlook to negative — warning that the facility is suffering from a sharp decline in its fiscal position.

The agency cut its rating two notches to Baa3 from Baa1 on nearly $80 million of outstanding bonds issued by Cuyahoga County on behalf of the hospital.

Mercy is a 476-bed hospital located in Canton. It serves a five-county area that suffers from some of the highest unemployment rates in the state.

The facility maintains a 27% market share, but faces increasing competition. Its biggest competitor is Aultman Hospital, which enjoys a 41% market share, according to Moody’s.

“Mercy’s financial performance in fiscal year 2010 was a marked departure from historical trends as revenue growth was flat while expenses continued to grow,” analyst Sarah Vennekotter said in a report on the downgrade.

The 2010 performance was due to several factors, Vennekotter said, including rising bad debt and charity care, and volume and liquidity declines.

Mercy’s weak performance has led to “distressed debt measures,” including 1.12 times maximum annual debt service coverage, analysts said.

The bonds are backed solely by revenues generated by Mercy, which do not include any of the medical centers also operated by the facility. The hospital is formally owned by Sisters of Charity Health System, which is not legally obligated for the bonds.

Moody’s warned that Mercy’s challenges are likely to persist. “The revision of the outlook to negative reflects our expectation that financial performance in fiscal year 2011 will likely remain very weak, with Mercy generating very little cash flow and experiencing continuing declines in cash levels,” Vennekotter said.

On the plus side, the system’s debt is all in a fixed-rate mode and its conservative investment allocation has helped preserve a modest cash position.

In 2000, the hospital — which was then part of a larger health care group — issued $90 million of uninsured revenue bonds.

Some of the debt has already matured, but the largest piece, $79 million, features a final maturity of 2030.

The bonds were yielding more than 7% in May trading, according to the Municipal Securities Rulemaking Board’s website.

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