OREANDA-NEWS. S&P Global Ratings revised its outlook to positive from stable and affirmed its 'BBB+' ratings on Chester County Health & Educational Facilities Authority, Pa.'s. $21.8 million series 2006 bonds issued for the Devereux Foundation (Devereux). At the same time, S&P Global Ratings assigned its 'BBB+' long-term rating to the authority's $17.4 million series 2016 bonds also issued for Devereux. The outlook is positive.

Proceeds from the series 2016 bonds are expected to refinance the 2006 bonds.

"The positive outlook reflects Devereux's improved operational performances with two years of materially reduced losses," said S&P Global Ratings analyst Cynthia Keller. "With Devereux's already strong enterprise profile, continued operational and balance sheet stability could result in an upgrade over the next two years."

The rating affirmation reflects Devereux's essential and broad service mix and geographic diversity which limits its reliance on any single payer. In addition, Devereux's size and scale have enabled it to respond quickly to industry changes and shift its service complement to meet the need of its clients which keeps the census high. Partially offsetting these strengths are generally thin margins in Devereux's business lines which results in reliance on fundraising and investment earnings. In addition, we consider Devereux's heavy reliance on government reimbursement to be a credit risk, given fluctuation in these revenue sources during various economic cycles.

The positive outlook reflects our view of Devereux's reduced operating losses, limited capital needs, and largely stable balance sheet. Devereux's operating model typically results in operating losses according to calculations by S&P Global Ratings which exclude investment income and contributions. However, we consider moderate losses acceptable at the current or potentially higher rating level as long as Devereux's balance sheet remains stable.

We might consider a higher rating during the two-year outlook period if Devereux maintains a longer trend of near breakeven operating performance that we view as sustainable into the future and has continued incremental improvement in unrestricted reserves, especially relative to debt.

We believe Devereux has flexibility at the current rating level and so a downgrade is not expected. However, we could consider a revision to a stable outlook with sustained materially higher operating losses or with the issuance of significant debt without a commensurate increase in unrestricted reserves.