CHICAGO — Illinois-based OSF Healthcare System's A3 rating is stabilizing due to recent operating improvements after a tough 2013, Moody's Investors Service said.

The rating agency shifted its outlook to stable from negative Aug. 12. The action impacts $784 million of debt.

The outlook revision reflects OSF's marked operating improvement in the nine-month period ended June 30, 2014, following an operating loss in fiscal year 2013.

"The system's margins in the interim period were solid and exceeded budget, reflecting large cost reductions and good revenue growth. OSF's investments in service lines, physicians, and care management should support sustaining improved operating levels," Moody's wrote. Liquidity is also on the raise growing to a strong 212 days cash on hand as of June 30.

The A3 rating benefits from OSF's large, multi-site system and expanding presence in several distinct healthcare markets in northern and central Illinois, leading market positions in its largest markets, a strong and liquid investment position, and manageable capital needs. The system has nearly $2 billion in annual operating revenue.

The system's challenges include a recent history of variable operating performance, higher-than-average direct leverage at its rating level, sizeable indirect debt, and competition in most markets. The system's indirect debt obligations stems from operating leases and an underfunded pension plan.

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