CHICAGO — Moody's Investors Service has revised its outlook to negative from positive on Edward Health Services Corp.'s A2 rating due to challenges posed by its new affiliation with Elmhurst Memorial Healthcare.

The action impacts $244 million of rated debt. Edward is based in the far western suburb of Naperville and Elmhurst is located in the western suburb of Elmhurst. The two formally decided to strike an affiliation in April.

"The revision in the outlook to negative from positive is driven by risk inherent in EHSC's affiliation with Elmhurst, which presents new operating and debt structure challenges to EHSC in the highly-competitive Chicagoland marketplace," Moody's said.

The A2 rating is supported by Edward's history of exceptionally strong operating performance that cushions the addition of Elmhurst's debt and its struggle with operating losses. The affiliation will result in a larger revenue base — growing to $989 million from $590 million — with future potential for shared savings and opportunities for economies of scale in the era of healthcare reform.

Under the affiliation agreement, debt from the two systems will remain separately obligated but Moody's still factored it in its assessment of Edward's credit because of the close operational relationship between the two under the agreement. Elmhurst has $510 million of debt with considerable derivatives exposure on $490 million. Edward has swaps on $134 million of its debt.

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