LOS ANGELES — Fitch Ratings upgraded Rady Children's Hospital and Health Center in San Diego to AA-minus from A-plus Oct. 13. The outlook is stable at the new rating, affecting $220 million in outstanding revenue bond debt.
The upgrade is based on Rady's continued strong overall financial profile with good liquidity, strong profitability and debt service coverage ratios that compare favorably to the AA category medians, Fitch analysts said. The children's hospital also has no major capital projects or plans to issue debt, which analysts said will further strengthen its balance sheet. It opened a new acute care pavilion in October 2010.
The 453-bed freestanding children's hospital is the largest in the state and the region's only pediatric trauma facility.
Fitch said it views the children hospital's dominant 88% market share in its primary service area of San Diego County as a key credit strength. Market share also has improved due to increasing adult partnerships and physician alignment initiatives. The hospital is affiliated with the University of California, San Diego and serves as the primary pediatric teaching hospital for UCSD School of Medicine.
It has a high exposure to Medi-Cal, which Fitch analysts said comprised 46.4% of its gross revenues in fiscal 2014. The hospital, however, has benefited from the provider fee program that has been extended through December 2016, analysts said. Rady's also recently received a $120 million gift from Ernest Rady that will be used to establish the Rady Pediatric Genomics and System Medicine Institute. The children's hospital has a target of $20 million a year to raise the needed ongoing support for the program.
Fitch said it expects Rady's to maintain its strong financial performance due to its market position and effective management practices that have resulted in a solid track record.
