CHICAGO - Moody's Investors Service boosted Advocate Sherman Hospital's rating by one level to Baa1 in recognition of its acquisition by the fiscally healthier Advocate Health Care Network last year.
The action Friday impacts $170 million of debt. The outlook is stable. Advocate is rated Aa2.
"The upgrade reflects realized and expected benefits from the hospital's high degree of consolidation and integration with Advocate Health Care Network and growth in investments over the last several years," Moody's wrote.
Although Sherman is budgeting a notable margin decline in 2014, Moody's said it expects margin improvement and cash growth beyond 2014 as Sherman consolidates contracting, physician recruitment and patient care systems with Advocate.
Another positive is Advocate's commitment to support a $200 million in capital projects and operating initiatives over five years.
The rating also reflects Sherman's high leverage and weak debt measures as well as the competitive service area it operates in, Moody's said.
Positive factors include market share growth and no debt structure risks with all fixed rate debt. With growth of investments, Sherman's cash on hand measured a good 170 days as of December 31, 2013.
Challenges include high leverage from financing construction of its new hospital, the expectation of weaker cashflow this year, and the competitive environment it operates in, Moody's said.
"The stable outlook reflects expected further benefits from the hospital's consolidation with Advocate Health Network, growth in liquidity as capital is likely to be moderate and Advocate will fund a portion of capital, and that Sherman will meet the 2014 budget," Moody's wrote.
Advocate last year issued debt that allowed it to tender some existing Sherman debt. Some of Sherman's debt was left alone because of rising rates. Advocate acquired Sherman, a 255-bed hospital, in far northwestern Chicago suburb of Elgin, on June 1.
