CHICAGO – Moody’s Investors Service revised its outlook on Illinois-based Presence Health’s issuer credit rating of Baa1 to negative from stable following the consolidation of Provena Health and Resurrection Health Care’s obligations into the new system.

The action impacts a total of $557 million of debt. The debt obligations of Provena and Resurrection Health Care May were consolidated in May and are now secured by Presence Health under an amended and restated master trust indenture. The two systems merged in November 2011.

“The negative rating outlook incorporates our expectation that achieving stability and predictability of performance will be challenging as operations at several inpatient divisions are very weak,” Moody’s said.

The rating reflects Presence Health’s sizable market footprint including some geographic diversity, maintenance of adequate unrestricted cash and investments position which is largely liquid, and potential for operating synergies as multiple comprehensive strategic initiatives underway to stabilize performance, Moody’s said.

The systems’ challenges include significant volume declines and high leverage, and a large decline in margins in fiscal 2013. The system reported an unexpectedly large operating loss through the first six months of fiscal 2013 of $28.9 million and saw an 8% decline in inpatient volumes in 2013.

Presence avoided a downgrade as analysts anticipate that results will benefit from immediate actions being taken by management to stem losses. A downgrade could come in the absence of significant improvements over the next year.

The system’s other challenges include operating in a competitive landscape. In its favor, the system enjoys a sizeable market footprint in Chicago and the surrounding counties, operating 12 hospitals and 27 senior living and long-term care facilities. The system is based in Chicago. The system carries ratings of BBB-plus from Fitch Ratings and Standard & Poor’s.

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