CHICAGO -- Standard & Poor's Corp. put $184 million of revenue bonds issued for two Denver-area hospitals on CreditWatch in anticipation of the merger of the two facilities.

The $97.9 million of Presbyterian/St. Luke's Healthcare System bonds. which are rated triple-B, was placed on CreditWatch last week with developing implications. That means the rating may be raised or lowered.

The $86.2 million of Swedish Medical Center bonds, which are rated A, was placed on CreditWatch with negative implications. The bonds were issued through the Colorado Health Facilities Authority.

About $137 million of Financial Security Assurance-insured revenue bonds, issued on behalf of Presbyterian/St. Luke's, was not affected by the action.

Cynthia Keller, a director at Standard & Poor's, said she was not aware of any other merger between a triple-B-rated and an A-rated hospital.

However, Keller noted that triple-B rated Presbyterian/St. Luke's has he "institutional characteristics of an A-rated" hospital.

She said that Presbyterian/St. Luke's has a triple-B rating primarily because it is highly leveraged from debt it issued to finance the purchase of two hospitals several years ago.

In last week's CreditWeek Municipal, Standard and Poor's said that the CreditWatch implications indicate the "probability that [Swedish Medical Center's] rating will be lowered to reflect [Presbyterian/St. Luke's] recent transition from for-profit ownership and resulting high leverage."

However, the rating for Presbyterian/St. Luke's could be upgraded if the merger benefits both facilities, Standard & Poor's said.

Presbyterian/St. Luke's, which is currently a nonprofit hospital, issued $137 million of bonds in 1991 to buy two hospitals from American Medical International, a. for-profit institution.

Presbyterian/St. Luke's operates a 563-bed medical center in downtown Denver, in addition to a 137-bed primary care center in east Denver. Swedish Medical Center runs a 328-bed acute-care hospital 15 miles south of Denver.

Officials from Swedish Medical Center and Presbyterian/St. Luke's could not be reached for comment. Standard & Poor's said it will issue another rating decision after Nov. 1, the effective date of the merger. The combined system will be the largest health care provider in the Denver metropolitan area.

"The ability of the administration to effectively manage this transition period will dictate the magnitude of benefits to be achieved from improved geographical coverage and ability to negotiate managed care contracts," the rating agency said.

Though the legal structure that will secure the outstanding debt of the two hospitals has not been finalized, Standard and Poor's said it "presumes that each organization will be at least morally obligated on all outstanding debt due to the intermingling of operations, revenues, and assets."

John Goetz, a vice president and managing director of health care ratings at Moody's Investors Service, said that Moody's is taking a "wait-and-see" stance toward evaluation of the two institutions' bond ratings.

Moody's rates Presbyterian/St. Luke's bonds Baa and Swedish Medical Center bonds A.

Keller said that there is "definitely a possibility" that more mergers among hospitals with widely different ratings could occur in the future as consolidations accelerate in response to health care reforms. Many weaker hospitals could be tapped for mergers if they have favorable characteristics with potential for development, she said.

Anne G. Ross, vice president and manager at Roosevelt & Cross Inc., agreed, adding that many institutions may be forced to consolidate or face closure.

"That will turn out to be an evolutionary process. It will add another risk element to an already risky industry," Ross said.

Troy A. Gerleman, vice president of tax-exempt fixed income research at Kemper Securities Inc., said that the spread between the ratings of Swedish Medical Center and Presbyterian/St. Luke's is the widest he has seen in a merger.

Gerleman said it is unclear whether similar mergers will occur in future. However, he said that strong institutions will merge with significantly weaker ones "only if it makes sense strategically."

Health care finance officials said that the general trend of hospital mergers, partly spurred by anticipated national health care reforms, shows no sign of abating. They said that most of the institutions interested in merging are seeking to provide a broad spectrum of care to attract the business of large health care purchasing networks.

"You'll see more and more of this in the next couple of years in the major urban markets," said Arlan Dohrmann, senior vice president and manager of health care finance at George K. Baum & Co.

"There is a greater belief that being a large dominant provider will be extremely important than it has been in the past. It is causing institutions that have peacefully coexisted to look at ways to combine forces," said Ed Malmstrom, a managing director and manager of health care finance at Merrill Lynch Capital Markets.

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