Catholic Health Initiatives is headquartered in Englewood, Colo.

DALLAS - Citing a "large and unexpected operating loss," Standard & Poor's has downgraded Catholic Health Initiatives' $7 billion of outstanding debt to A from A-plus and maintained a negative outlook.

"CHI's operating performance worsened considerably in fiscal 2014, contrary to our expectations of an improvement," analyst Liz Sweeney wrote in a Dec. 15 report.

The nonprofit healthcare operator, headquartered in Englewood, Colo., attributed the $641 million operating loss to problems in some of its markets, particularly Kentucky, Sweeney said. Other factors were high expenses for electronic medical record rollouts, costs of investments for health reform, including health plan development and physician integration.

"We expected improvement in fiscal 2014 due to integration efforts in certain markets, particularly Kentucky, Nebraska, and Texas," Sweeney wrote. "Although progress has been made in certain areas, including Texas, other areas such as Kentucky were notably worse and IT [information technology] costs were well above budgeted."

CHI said the downgrade was not unexpected, given the system's strategic investments in a dramatically changing healthcare environment.  Remaining in S&P's A-category shows the strength of CHI's balance sheet, with $22 billion in assets and about $7 billion in cash, said spokesman Michael Romano.

"CHI will continue to make the investments and changes necessary to position the system for future success, recognizing that a return on these investments will take time as we acquire these new capabilities and build upon a well-integrated system of regional networks," Romano said. "At the same time, CHI is in the midst of expense reduction as the organization works to align expenses with revenue."

Romano told The Bond Buyer that key markets are showing growth and strength. Total revenues in each of six markets will exceed $2 billion in the 2015 fiscal year.

"Just three years ago, CHI had only three markets with more than $1 billion each in revenue," he said. "Physician visits and total outpatient visits both increased significantly in the 2014 fiscal year."

Catholic Health Initiatives is a nonprofit, faith-based health system formed in 1996 through the consolidation of four Catholic health systems. CHI operates in 18 states and has 93 hospitals, including four academic health centers and teaching hospitals and 24 critical-access facilities.

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