Moody's upgraded San Diego, Calif.-based Sharp HealthCare's rating to A1 from A2, affecting approximately $475 million of outstanding debt.
The rating agency also said in its report that if operating performance can be sustained at current levels, and balance sheet measures continue to improve, they would expect to upgrade the rating to Aa3 within the next two years.
The healthcare provider, which has approximately $600 million of total debt outstanding, also received a positive outlook.
The debt was originally issued by ABAG Finance Authority for Nonprofit Corporations, and the California Health Facilities Financing Authority.
The upgrade reflects strong operating performance, the material improvement of balance sheet measures, and the absence of significant capital projects beyond the current fiscal year, according to the report.
Despite a challenging payer mix, management has been able to improve profitability, and sustain performance at the higher level, according to the rating agency.
Sharp has strong market position and regional presence as one of two leading systems in San Diego County; a strong revenue base generating over $2.5 billion in net operating revenue; an integrated delivery system with various forms of care delivery, a strong base of affiliated physicians, and over 61,000 enrolled health plan members, according to the report.
It also has a significantly improved operating performance including an 11.7% improvement in operating cash flow margin and 12% in fiscal year 2012, according to the report.
According to analysts, Sharp plans to maintain modest levels of capital spending for the next five years. It has most of its major capital projects behind it and has relatively modest future capital needs; and all facilities are currently compliant under California state seismic requirements.
The hospital system, however, is located in a highly competitive environment in San Diego County with no organization garnering more than 28% county-wide market share.