CHICAGO - Moody's Investors Service has revised the outlook on Illinois-based Memorial Health System's A1 rating to negative from stable ahead of its sale of $60 million of revenue bonds to finance projects at its flagship hospital and teaching facilities.
"The negative outlook factors MHS' construction risks, particularly given the system's high pro forma debt load," Moody's wrote.
The action impacts $207 million of rated debt. The new bonds are being sold later this month. The system is also plans to issue another $60 million of floating-rate debt to help finance the $147 million project.
Piper Jaffray & Co. is underwriter and the Illinois Finance Authority is issuing the bonds on the system's behalf.
MHS operates three hospitals in central Illinois including its flagship Memorial Medical Center in Springfield; Taylorville Memorial Hospital in Taylorville; and Abraham Lincoln Memorial Hospital in Lincoln.
In December, the system signed a definitive agreement with Passavant Area Hospital to join the system as a non-obligated member. The system serves as a one of two primary teaching hospitals for Southern Illinois University.
The system's rating reflects MHS' leading market position in a broad service area, adequate balance sheet position, and track record of profitability with strong margins in fiscal 2012 and 2013.
"The negative outlook factors the possibility that MHS may not be able to sustain these strong margins given the ongoing construction risks at the MMC flagship campus, particularly given the system's high pro forma level of debt," analysts wrote.
The system is rated A-plus by Standard & Poor's.
