LOS ANGELES — Moody's Investors Service upgraded Legacy Health System's revenue bonds to A1 from A2, with a stable outlook, based on improved finances.

Legacy Health is a non-profit system consisting of six primary-care hospitals, allied clinics, and outpatient facilities in Portland, Ore.

"The upgrade of the rating to A1 and the maintenance of the stable outlook reflects the continuation of strong operating performance, the significant improvement of balance sheet measures, the successful completion of the organization's most recent master capital plan, and the absence of significant capital spending in the immediate future," Moody's analysts said in a report released Nov. 12.

The system recently completed a large, several-year master facility plan on time and on budget and is successfully operating the assets with no margin degradation, Moody's said. Relatively light capital spending is expected for fiscal year 2014 and 2015.

Challenges for the system include significant competition in the Portland market, Legacy's high unfunded pension liability, and the possibility of increased capital spending and additional debt in the future, analysts said.

Legacy is one of the major healthcare providers in the area, in second place with a 28% market share overall, behind Providence Health & Services. Other providers in the market include Oregon Health & Sciences University and Kaiser Permanente.

"Although there has been some improvement, Portland retains some economic softness, with increased economic pressure outside the metropolitan region," Moody's said. "Overall healthcare utilization is down in the region, and Legacy's payer mix is shifting, with greater exposure to both Medicaid and Medicare."

The upgrade affects approximately $474 million of rated debt. The system has around $508 million of total debt outstanding.

While the stable outlook reflects the absence of any debt or significant capital investment plans in the immediate future, there may be additional debt and significant spending commencing in calendar year 2015, or after, analysts said.

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