Moody's Investors Service downgraded $120 million in Crozer Keystone Health System debt, citing "the sharp and unexpected decline in operating performance" through the first nine months of the Delaware County health system's fiscal year that ends June 30.
Crozer last week reported a $31.6 million operating loss through March 31, including $6 million for severance related to the elimination of 200 positions announced in February.
The new Moody's rating is Ba2, down from Baa3.
The financial outlook remains negative at the lower rating, which means the bonds have "speculative elements and are subject to substantial credit risk," according to Moody's.
Moody's warned that the operating deficit and scant operating cash flow expected for fiscal 2014 "may lead to violations of certain covenants in bond and bank documents."
Crozer said that broad changes in health care have negatively affect its performance.
"Our management team has worked to cut costs and to increase efficiencies, and these initiatives are already having a positive impact on our financial performance," Crozer said in a statement, without providing specifics.
"We will continue to work with our key constituencies to ensure a positive financial future for our health system," the statement said.
Crozer's labor contract with nurses at the Crozer-Chester Medical Center expires in June, according to Moody's. "Inability to achieve concessions could impede initiatives to reduce losses," Moody's said.