S&P Downgrades El Paso County Hospital District on Cash Concerns

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DALLAS - Standard & Poor's downgraded El Paso County Hospital District, Texas, to A-plus from AA-minus and retained a negative outlook due to the district's weakening cash position.

"The rating action is based on our view of the district's declining cash levels related to operational pressures tied to the operation of El Paso Children's Hospital," said Standard & Poor's analyst Brian Marshall.

"The negative outlook reflects our anticipation that operations may continue to show signs of stress as a result of the support provided to Children's Hospital," he added.

El Paso Children's Hospital owes the district's University Medical Center $80 million that Children's officials say they cannot pay. UMC has placed a lien on Children's.

Fitch Ratings downgraded the district to AA-minus from AA on Aug. 25 and also retained a negative outlook, affecting about $360 million of outstanding bonds.

"The negative outlook indicates concern over EPCH's going concern disclosure in its 2013 audit and the financial impact of its distressed credit profile on the district," Fitch analyst Rebecca Meyer wrote. "It is Fitch's understanding that EPCH is actively seeking a relationship to enter into a partnership with a third-party provider."

The University Medical Center is a 394-bed acute care facility owned by the district that serves as the primary teaching hospital for the Texas Tech University Health Sciences Center in El Paso. The El Paso Children's Hospital opened in February 2012 and was financed with series 2008 bond proceeds. The district owns the facility and leases it to the separately licensed non-profit EPCH, which has an independent board of governors.

EPCH's 2013 audit reported that its ability to continue as an ongoing entity is dependent on arriving at a "mutually acceptable agreement with UMC" and improved operating results.

As a new operation, EPCH has been challenged with reductions in reimbursement rates, a lack of participation in the state Medicaid Waiver program, increased overhead and operating expenses, poor accounts receivable management and lower than anticipated inpatient volumes, according to Fitch.

"EPCH officials report that EPCH is currently in negotiation with potential strategic partners which should provide a cash infusion, management expertise and improved operations," Meyer noted. "Fitch will monitor the ability of UMC to stabilize finances to the extent that a strategic partner is not identified."

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Healthcare industry Texas
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