Moody’s Investors Service downgraded Pennsylvania-based Sacred Heart Health System’s debt to Caa3 from B3.

The rating outlook remains negative.

The rating applies to $37.7 million of outstanding debt, including $9.6 million of Series 1998B variable-rate debt backed by a letter of credit provided by Wachovia Bank.

The LOC-backed debt is rated under a “two-party pay” analysis that incorporates both SHHS’ and Wachovia’s rating. The LOC-backed bonds are rated Aa1/VMIG1 for its long-term bank deposits and Prime-1 for its short-term bank deposits.

The downgrade is primarily attributable to continued decline in volumes, increased physician turnover, and weakened financial performance, the rating agency said.

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