DALLAS – Gainesville Hospital District in North Texas is in the process of reorganizing under Chapter 9 bankruptcy, according to an event notice on the Municipal Securities Rulemaking Board's EMMA Web site.
The district, which operates the North Texas Medical Center on the Texas-Oklahoma border north of Dallas, has $19.7 million of general obligation bonds outstanding. The debt issued in 2007 is insured by Ambac.
The material event notice dated Jan. 24 reported the petition was filed in U.S. Bankruptcy Court for the Eastern District of Texas on Jan. 17.
The hospital is operating under a management services agreement with Universal Health Services and Texoma Medical Center in Denison, officials said.
The district board voted to file for Chapter 9 in December and notified the ratings agencies. Moody's Investors Service downgraded the district to Ba1 from A3 on Jan. 4 and kept the credit on review for another downgrade.
Fitch Ratings revised its rating watch to negative from evolving on the district's A rating. The Fitch Rating is based on the Ambac insurance.
Despite the bankruptcy, the district has not reported any default on its bond debt.
Moody's said its rating "reflects our expectation that, despite the bankruptcy filing, the district will continue to make its debt service payments in full and on time with ample headroom below the maximum tax rate."
In the process of reorganizing, the bankruptcy court "could conceivably include an automatic stay on debt payments, as well as details of negotiations with UHS as they emerge," Moody's added.
The hospital district said that 75% of its unsecured debt is in the form of pension obligations.
"The district's financial operations have been characterized by multiple years of operating losses and negative cash flow," Moody's said.
The bankruptcy comes as rural hospitals in Texas face intense pressures from declining state and federal financial support.
Over the past two years, 14 of Texas' 175 rural hospitals have closed, the fastest pace since the 1980s when 200 shut down, according to the Texas Organization of Regional and Community Hospitals.
The Bowie County Hospital District, also in the Texoma region, closed its doors in 2016 after voters refused to create a taxing district.
Another North Texas hospital district in Somervell County defaulted on a $308,631 interest payment on Aug. 15, 2016.
