Moody’s Investors Service revised its outlook on St. Joseph’s Healthcare System’s Ba1 rating to positive from stable.

The system has $234.9 million in debt issued by the New Jersey Health Care Facilities Finance Authority.  St. Joseph’s is located in Paterson, N.J., about nine miles west of New York City.

The ratings outlook reflects improvement in operating performance and balance sheet measures over the last two fiscal years, Moody’s analyst Jennifer Ewing and vice president Beth Wexler said Dec. 2.

St. Joseph’s operating cash flow margin through the first nine months of fiscal 2013 is, at 9.5%, above rating category medians for the second consecutive year. The below Baa median operating cash flow margin for Moody’s not-for-profit healthcare sector is 4.7%.

St. Joseph’s debt service coverage ratios have also improved. Maximum annual debt service coverage has improved to 3.4 times compared to 1.7 times in fiscal 2011. The below Baa median is 1.7 times.

For challenges, the analysts note that St. Joseph’s has a significant reliance on state charity care subsidies. The state may choose to cut these in coming years.

Another challenge is that St. Joseph’s has a cash-to-direct debt ratio of 61%, similar to the below Baa median ratio of 56%.

If Moody’s were to upgrade St.Joseph’s Ba1 rating it would go from a speculative grade to an investment grade.

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