Moody's Investors Service revised its outlook on $392 million of bonds issued for Mount Sinai Hospital in New York City to negative from positive, citing "meaningful financial and integration risks" related to its merger with Continuum Health Partners Inc.

The boards of directors for Mount Sinai and Continuum on Monday approved the merger, which creates the Mount Sinai Health System. The organizations expect full integration over 18 months.

Moody's affirmed its A2 rating of the bonds, which the Dormitory Authority of the State of New York issued.

The new system will consist of the flagship Mount Sinai, which straddles Manhattan's Upper East Side and East Harlem; Mount Sinai Queens; Beth Israel Medical Center; Beth Israel Brooklyn; New York Eye and Ear Infirmary; Roosevelt Hospital; and St. Luke's Hospital.

"The Continuum hospitals bring additional debt, operating leases, pension obligations, thin liquidity and historically weaker financial performance which could result in a material deterioration of [Mount Sinai's] financial position and performance should significant integration savings and revenue enhancements not be realized," Moody's wrote in a report late Tuesday. "While the obligated groups of all of the hospitals will remain separate, our rating is based on a pro forma analysis of the combined organization."

Moody's cited Mount Sinai's "strong market position" in the city and close relationship with Icahn School of Medicine as credit strengths.

Challenges, according to Moody's, include added leverage from a proposed issuance of $125 million of incremental debt to fund renovations at Mount Sinai Queens, the need to absorb Medicare reductions to teaching hospitals associated with national health care overhaul, and a "significant allocation" to alternative investments that could limit liquidity of a jointly managed long-term investment pool.

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