Chap. 9 Ruling Lifts Health District

Moody’s Investors Service has upgraded Sierra Kings Health Care District’s general obligation bonds to Baa3 from Ba2 after a federal judge ruled that GO debt service cannot be interrupted by the district’s Chapter 9 bankruptcy filing.

The ratings agency said the upgrade to investment grade reflects the ruling by the United States Bankruptcy Court Eastern District of California that the voter-approved property tax pledge securing the GO bonds qualifies as both a “special revenue pledge” and a “statutory lien.”

Moody’s said that means that the property tax levy, collections, and payments for the district’s GO bond debt service cannot be disrupted by the bankruptcy proceedings.

The district has issued $20 million in GOs approved by its voters in 2006. Those bonds, Moody’s said, also benefit from the structural security for California local government GO bonds.

But the rating, the lowest investment grade, also reflects major financial hurdles facing the district.

“The rating is inclusive of the district’s small Central Valley tax base, and its current, strained fiscal position, which raises questions as to the long-term viability of the hospital facility,” Moody’s said in a report released Tuesday.

The district filed for bankruptcy in October 2009 after discovering that management had spent $1.7 million of bond funds on operating expenses.

Last year, the district paid all of its $257,000 in interest payments, prompting Moody’s to remove a negative outlook.

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