Moody's Investors Service upgraded UMass Memorial Health Care revenue bonds out of junk to Baa3 from Ba1, affecting $265 million of rated debt.
Moody's cited a second straight fiscal year of positive operating performance, receipt of a portion of much-delayed supplemental Medicaid funding and clarification of capital needs and future borrowing plans, with manageable near-term additional debt planned.
UMass Memorial is the largest health-care system in central Massachusetts. Its hospitals are UMass Memorial Medical Center in Worcester; Clinton Hospital; HealthAlliance Hospital in Leominster and Fitchburg; and Marlborough Hospital.
"The rating also acknowledges the health system's large size, clinical diversification, and close working relationship as the academic medical center for the University of Massachusetts Medical School," Moody's said in a Jan. 7 statement.
Key credit challenges, said Moody's, include still-modest operating margins, above average Medicaid exposure, reliance on and delays in supplemental Medicaid funding, and an expended increase in capital spending anticipated.
"The installation and implementation of new electronic medical record system during [fiscal] 2017 and 2018 represent execution risk," Moody's added.
Moody's, which expects continued positive operations during the system's capita-intensive period, assigned a stable outlook for the health system.
"Successful cost containment and implementation of major information technology investments over the next two years could contribute to longer-term positive rating momentum," said Moody's.