OREANDA-NEWS. S&P Global Ratings revised its outlook to stable from negative and affirmed its 'BB' rating on existing debt issued by the Rhode Island Health & Educational Building Corp. (RIHEBC) for Care New England Health System (CNE). We also assigned our 'BB' rating to RIHEBC's series 2016B revenue bonds issued for CNE and CNE's 2016C taxable bonds issued for itself.

"The outlook revision to stable reflects our view of CNE's system-wide recovery plans, currently underway, and its improved quarter-by-quarter financial performance in fiscal 2016," said S&P Global Ratings analyst Jennifer Soule. "We think that the system's turnaround efforts, while aggressive, are essential for its future financial stability and expect CNE to meet its financial projections over the coming years."

The series 2016B and 2016C bonds refinance nearly all of CNE's long-term debt, except for approximately $9 million in small mortgages and a capital lease. We will remove our ratings on any rated debt outstanding upon defeasance.

The 'BB' rating reflects our view of CNE's thin financial profile in recent years, including volatile financial operating performance, an inability to achieve budget expectations and a light measure of days' cash on hand for the rating level. It also reflects our view of CNE's enterprise profile that we have historically viewed as stable but disjointed given its federated model.

We could consider a negative outlook or a lower rating if CNE falls significantly short of its projections within the one-year outlook period, or if it needs to further draw on cash or add debt to significantly support capital or operations through that timeframe. At this rating level, however, we do believe there is latitude in our evaluation of the recovery timing.

We expect a slow and gradual improvement in CNE's credit quality over the coming years and we will require stability in this improvement before raising the rating for CNE as an independent entity. However, if CNE's merger with Southcoast is finalized, we believe that the GCP of the parent entity will likely be higher than the current rating on CNE, which could ultimately lead to an upgrade for CNE at that time. We will continue to evaluate the timing and terms of this formal affiliation as it evolves.