California Health District to Issue $250 Million of GOs in December

SAN FRANCISCO — The Palomar Pomerado Health District in California plans to issue $250 million in general obligation bonds in December. It will mark the second issuance from a voter-approved $496 million GO bond authorization in 2004, after an $80 million GO issue in 2005.The general obligation bonds will be repaid with revenue from an unlimited property tax pledge. Moody’s Investors Service has affirmed its Aa3 underlying rating on the district’s GO bonds, citing the tax base as a primary factor. Fitch Ratings assigned a new AA-minus underlying rating to both the outstanding GO bonds and the new issue.No Standard & Poor’s rating for the new debt was available yesterday. The ratings agency downgraded the credit four notches in May, when it revised its criteria for all tax-secured hospital district debt to focus more on the credit quality of the hospital’s business, in addition to the traditional tax secured analysis.As a result, Palomar Pomerado’s outstanding GOs were downgraded to BBB-plus from AA-minus.The hospital district is more than 800 square miles in size, with some 480,000 residents, and a tax base that is growing despite the current real estate market slowdown, according to Moody’s.Moody’s ratings report noted that the district’s debt structure is a “credit negative,” with slow principal repayment and a debt structure that assumes a 6% annual growth in assessed valuation, which may not in fact be sustained.If that growth rate fails to materialize, the ratings agency said, either the tax rate would have to rise above the level promised to voters in 2004, which may be politically problematic, or the district would have to use more expensive alternative financing for its capital plan, which is approaching $1 billion.Moody’s has an underlying A3 rating on the hospital district’s outstanding revenue bond debt.The Fitch analysis noted relatively weak liquidity levels and a relatively high debt burdens compared to other hospital credits, balanced by the quality of the tax base.Citi is lead underwriter for the coming bond issue, according to Fitch.