Moody’s Investors Service Wednesday downgraded to A2 from Aa3 Washington’s King County Public Hospital District No. 1’s limited-tax general obligation bonds affecting $223.9 million of debt.
It also downgraded the district’s issuer rating to Aa3 from Aa2, while assigning all the debt a stable outlook.
The GOLT bonds are a general obligation of the district for which it has covenanted to budget and levy ad valorem taxes within the constitutional and statutory limitations of non-voter approved debt. Because they are limited-tax GOs, there is no obligation to raise taxes to meet debt-service requirements.
Analysts said the downgrade of the district’s GOLT rating primarily reflects inadequate coverage of annual debt service provided by the current regular property tax rate.
They also cited reliance on operating revenues to meet portions of GOLT debt- service requirements, exposing the bonds to risks from health care operations.
Additionally, the portions of GOLT debt service not met by property taxes and fulfilled by operating revenue are subordinate to the district’s $82.5 million of outstanding revenue bonds.
Some uncertainty also remains regarding the alliance between the district and the University of Washington, with legal motions likely to continue for several months or longer.
The downgrade of the district’s issuer rating to Aa3 from Aa2 primarily reflects the increasing competitive environment faced in the Puget Sound region in recent years and the district’s exposure to health-care enterprise risks.
The Aa3 issuer rating also incorporates its sizeable tax base, the above-average wealth levels found in the district’s service area, strong market position, satisfactory financial operations and manageable debt levels.
The stable outlook reflects Moody’s expectations that operating cash-flow margins will continue to be more than sufficient to cover both debt service on the district’s revenue bonds as well as any shortfall from property taxes on the district’s GOLT bonds’ debt service.