NEW YORK - Standard & Poor's Ratings Services said it changed its outlook to positive from stable and affirmed its BBB-plus long-term rating on $253.8 million series 2008A, 2008B, 2008C, 2008D, and 2008E fixed-rate bonds issued by the Albany Industrial Development Agency, N.Y. and $34.2 million series 2011 fixed-rate bonds issued by the Albany City Capital Resource Corp., for St. Peter's Hospital.

"The positive outlook reflects an improved balance sheet, which will provide a cushion as the new system moves to more fully integrate its campuses and services," said Standard & Poor's credit analyst Cynthia Keller Macdonald. "However, any rating actions will depend on the amount of future debt issuance and level of earnings and cash flow generated by the affiliation strategies."

Last October, St. Peter's Health Care Services, the parent of St. Peter's Hospital, merged with two local competitors -- Seton Health and Northeast Health. The three organizations operate under a new sole corporate member, St. Peter's Health Partners (SPHP), which is a subsidiary of Catholic Health East (CHE), Pa.

While the integration process is expected to be lengthy, there have also been immediate benefits from the merger, including cost savings, clinical integration, and a significantly improved balance sheet brought to the organization from both Seton Health and Northeast Health, which together have cash and investments that are more than double debt outstanding.

The  rating reflects St. Peter's: Relationship with A rated CHE; immediate balance sheet benefits resulting from the merger with Seton Health and Northeast Health and potential benefits as management focuses on system development and market synergies; and steady cash flow improvement over the last three years although earnings declined slightly in 2011 due to rising depreciation and interest expense.

Partially offsetting rating factors include the challenges of integrating these organizations while simultaneously maintaining good financial performance and the presence of a strong competitor in the market.

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