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01 Dec 2011


New York, December 01, 2011 -- Moody's Investors Service has affirmed the Baa2 rating on Holy Redeemer Health System's (HRHS) outstanding Series 1997 and 2006 bonds. HRHS has approximately $86 million of outstanding rated debt, incorporating the recent redemption of $21.9 million of Series 1997 bonds using proceeds from a taxable bank loan as described in more detail below. The outlook is negative.

HRHS is a Catholic health care system comprised of a 263-bed acute care medical surgical hospital; long-term care facilities and communities in Pennsylvania with a total of 526 independent living and 122 personal care beds, 416 skilled nursing beds and 30 transitional housing units; four home health agencies along with three Medicare certified hospices; a freestanding ambulatory surgery center; and a physician corporation as well as other various affiliates.


The Baa2 rating reflects HRHS' diversified healthcare services, unrestricted cash levels, and largely fixed rate debt structure. These credit strengths are offset by ongoing pressure on hospital patient volumes and net patient revenue growth and allocation to alternative investments limiting liquidity.


*Sizable provider with diversification of services including a hospital, sizeable home health and long-term care ($357.3 million of operating revenue in FY 2011)

*Healthy cushion of unrestricted cash and investments for the System relative to Baa2-medians (HRHS' days cash on hand was 142 days in FY 2010 and improved to 163 days in FY 2011, compared to Baa2 median of 110.5 days in FY 2010) although this credit strength is offset by the System's asset allocation and more limited liquidity measures


*Significant competition from hospitals in the crowded greater Philadelphia market as indicated by multi-year declines in patient volumes and essentially flat net patient revenue growth in FY 2011

*Ongoing pressure on operating cash flow (8.1% operating cash flow margin in FY 2011), with challenged operating performance during the first 3 months of FY 2012 ($588,000 operating deficit during the three months ending September 30, 2011)

*Limitations on liquidity as a result of investments in hedge funds and other alternative investment vehicles (by Moody's calculation unrestricted monthly liquidity covers 90 days of cash expenses in FY 2011)

*Challenging payor mix characterized by high Medicare due to HRHS' focus on senior services and a concentration of commercial business with two large payors (48.2% of gross patient revenues from Medicare in FY 2011 including Medicare managed care); skilled nursing facilities, in particular, face Medicare and Medicaid cuts


The negative outlook reflects ongoing pressure on patient volumes contributing to thin operating performance and ongoing pressure on Medicare and Medicaid reimbursement, particularly for skilled nursing facilities. An inability to grow net patient revenue and contain expenses to improve operating cash flow could result in rating pressure.


Material and sustained volume growth translating into an improvement in operating performance; a significant increase in liquidity and improved leverage measures


Further decline in operating cash flow or monthly liquidity, substantial increase in debt, prolonged volume declines

The principal methodology used in this rating was Not-for-Profit Hospitals and Health Systems published in January 2008. Please see the Credit Policy page on for a copy of this methodology.


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