CHICAGO — Moody's Investors Service has revised its outlook on the University of Chicago Medical Center's Aa3 rating to negative over declines in is operating margins over the last two fiscal years.

The action impacts $737 million of debt. The declines are of particular concern to analysts because of UCMC's highly leveraged position.

The operating margin pressure is due to a significant increase in transfers to the University of Chicago, which are expected to continue in the near term. Fiscal 2013 was also pressured by Medicaid cuts, federal sequestration, and some one-time costs associated with the opening of UCMC's new 240-bed facility, the Center for Care and Discovery, analysts said.

"Failure to achieve meaningful improvement in the operating cash flow margin in the coming months or meet the fiscal year budget is likely to result in a downgrade," analysts wrote. "Additionally, UCMC will need to improve performance beyond FY 2014 budgeted levels in order to support a very high debt level at the current rating category."

The rating is supported by UCMC's strong relationship with Aa1-rated University of Chicago and favorable recent volume trends and market share growth and favorable cash on hand ratios of 252 days. The medical center is also a large and nationally recognized academic medical center.

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