Edward Hospital & Health Services and Elmhurst Memorial Healthcare last week formally decided to merge to create one system with more than $1 billion in annual revenues serving the near and far western suburbs of Chicago.

The two independent suburban Chicago hospitals signed a definitive agreement to merge. The two announced in January their decision to consider a tie-up.

Elmhurst Memorial is located in west suburban Elmhurst, and Edward and Edward Hospital in the far western suburb of Naperville with a smaller campus in nearby Plainfield.

Elmhurst was founded in 1926. In June 2011 it opened a replacement 259-room acute care facility. Edward's main campus in Naperville houses a 309-bed hospital. It also operates an emergency care, outpatient surgery and cancer center in Plainfield.

The union allows Edward to extend its reach and Elmhurst to join forces with a higher-rated and more fiscally stable system. Elmhurst has $495 million of debt rated in the triple-B category and Edward has $278 million rated in the single-A category, all issued through the Illinois Finance Authority.

Fitch Ratings recently downgraded Elmhurst one notch to BBB from BBB-plus due to its weak operating performance. A portion of its debt carries letter of credit ratings. The bonds previously had been on Rating Watch. At the lower level, Fitch assigned a stable outlook. The hospital is challenged by its high leverage and a debt structure of which 50% is in a variable-rate mode.

Moody's Investors Service rates Edward A2 with a positive outlook. "The A2 rating is based on Edward's location in a solid demographic area, history of strong operating margins, and very good and liquid, unrestricted investment position," Moody's wrote. "These strengths are offset by increasing competition in a crowed and rapidly consolidating market, trend of modest revenue growth, relatively high variable rate debt, and expected increase in capital spending and possibly debt."

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