Children's Hospital of Los Angeles last week issued $187.5 million in taxable revenue bonds, proceeding with the deal after Moody's affirmed its credit rating at a junk Ba2 and assigned a negative outlook.
BofA Securities priced the $185.7 million Series A taxable revenue bonds on March 25, which sold at a 5.4% coupon with a yield +137 to the U.S. Treasury curve, according to LSEG data. Moody's estimates that CHLA will have roughly $774 million of outstanding debt after the expected Series 2026B issuance prices.
The hospital expects to issue an equivalent amount, the Series 2026B bonds, within the next 60 days.
The Ba2 rating reflects CHLA's "challenged operations, and very weak liquidity," Moody's Analyst Eugene Spielman said in the March ratings report. The rating agency cited the hospital's heavy reliance on state funding due to its significant
CHLA has experienced a sharp decline in its credit standing,
But the bonds were covered by Assured Guaranty, which gave them insured ratings of A1 from Moody's and AA from S&P. Both assigned stable outlooks for the insured bonds.
Liquidity remains severely strained, with days cash-on-hand dropping to approximately 17 days by Dec. 31, though the financing was expected to boost that to 54 days, Moody's said in a report. The delay in the Centers for Medicare and Medicaid Services (CMS) approval of round nine of California's provider fee program is a major contributing factor to the liquidity problems, Moody's said.
Management is focused on performance improvement opportunities in fiscal 2026, including labor-related savings and revenue cycle enhancements, according to the rating agency. Second quarter results showed an improvement over the first quarter, with the year-to-date operating cash flow margin rising to 1.1% (though still very weak). Management aims to achieve a 2% operating cash flow margin for the year, Moody's said.
The new money financing is anticipated to improve days-cash-on-hand to above 60 days. Furthermore, unrestricted cash and investments are supplemented by nearly $500 million of restricted investments that support operations, capital, and research.
Despite the challenges, Moody's cited CHLA's "important strengths," noting its vital role as a premier teaching and research institution and leading provider of high-acuity pediatric services. The hospital is ranked among the top children's hospitals in the country, benefits from a strong local market share, and draws patients nationally, supported by significant fundraising.
The negative outlook reflects the risk of rapid credit deterioration if liquidity strategies are not achieved over the next two months and the longer-term possibility that margins may fail to continue to improve.
