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Moody’s Investors Service has affirmed the A1 ratings for RWJ Barnabas Health NJ (RWJBH), affecting approximately $1.7 billion of debt. The outlook is revised to positive from stable.

According to Moody’s, affirmation of the A1 reflects expectations that favorable margins demonstrated since the formation of the system will continue.

The rating incorporates a leading market position as one of the largest health systems in New Jersey and the execution of a new master affiliation agreement with Rutgers University that will solidify the system’s role as the academic health system and primary teaching site in New Jersey.

“We believe that this relationship will support the system’s differentiating position to payers and provide long-term strategic benefits in a highly competitive market. While the agreement will require increased funding by RWJBH, we expect good performance will continue, offset by effective cost management and ongoing coalescing of system synergies,” Moody’s said in a statement.

Although capital spending will be high relative to cash flow over the next few years and incremental debt added in 2018 will moderate leverage metrics over the near term, Moody’s said that it expects balance sheet strength will be maintained. Other challenges will include the highly competitive landscape in several of the system’s markets and more challenged results at Robert Wood Johnson University Hospital, New Brunswick, the system’s largest facility.

The positive outlook reflects expectations that liquidity and margins will remain strong, even if margins moderate from recent levels, to support higher capital spending and incremental debt that was added in 2018. Moody’s said that the system’s strong cash flow and investments provide resources to finance capital plans while managing leverage.