NEW YORK - Standard & Poor's Ratings Services said it has revised it outlook to negative from stable on Providence Health & Services Obligated Group's, Wash. (PH&S) long-term bond ratings.

At the same time, Standard & Poor's assigned its AA long-term rating to Washington Health Care Facilities Authority's $524.83 million series 2012A revenue bonds and $100 million series 2012B bonds both issued on behalf of PH&S. Standard & Poor's also affirmed its AA, AA/A-1-plus, and A-1-plus ratings on debt issued by various issuers for PH&S.

"The outlook revision reflects our assessment of several credit factors that could result in a lower rating during the next two years, including income statement and balance sheet dilution stemming from PH&S' affiliation with Seattle-based Swedish Health Services, as well as funding-related issues for both the Swedish and PH&S' pension plans," said Standard & Poor's credit analyst Martin Arrick. "In addition, since the affiliation, PH&S' cash and investments have been light for the rating, especially as a percentage of debt, although they have improved since 2008," said Arrick.

According to Standard & Poor's, PH&S' operating profitability before the Swedish affiliation slipped in fiscal 2011 due to rate pressures and early costs associated with a large information technology (IT) installation, despite historically being strong and consistent. PH&S also projects operating profitability to decline further in 2012 and remain below historical levels until 2014.

The rating reflects Standard & Poor's view of PH&S' position as one of the nation's largest not-for-profit health care providers with 32 hospitals and more than $10 billion in annual revenues projected in 2012, demonstrating solid geographic and financial dispersion, and a strong business position in all of its major markets. PH&S' senior management team has been realigned with the Swedish affiliation and has incorporated Swedish's prior CEO successfully into a key leadership role.

Standard & Poor's could lower the rating on PH&S during the two-year outlook horizon, if overall operating profitability slips below the current forecast levels or if unrestricted cash and investments, as measured by Standard & Poor's, drops below 100% of debt. Standard & Poor's could consider returning the outlook to stable based on the demonstrated success of PH&S' current plan of correction combined with continued improvement in unrestricted cash and investments.

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