Moody's drops Children's Hospital Los Angeles' ratings to junk

Children's Hospital of Los Angeles

Children's Hospital of Los Angeles had its bond rating downgraded to Ba1 from Baa3 by Moody's Ratings, dropping it to junk from the lowest rung of investment grade. The rating was placed on review for further downgrade.

The rating agency Wednesday cited a heavy reliance on state funding due to its significant Medicaid exposure. CHLA has roughly $570 million of debt outstanding at fiscal year-end 2025.

The hospital system was already one of 27 nationally that had ratings downgraded by Moody's or Fitch Ratings this year, Becker's Hospital Review reported Nov. 13.

CHLA is a nationally recognized pediatric academic medical and research center that provides high acuity care across a range of specialties, conducting significant research, and operating numerous residency and training programs, Moody's said. It is affiliated with the Keck School of Medicine of the University of Southern California — has six special care centers across southern California and over 80 locations in its care network.

This is the second Moody's downgrade for CHLA this year. In May, Moody's dropped the rating to Baa3 from Baa2 saying the system had recorded three consecutive years of weak financial performance and had been challenged to rebuild liquidity.

In February, S&P Global Ratings lowered its long-term rating on the California Health Facilities Financing Authority's debt issued for CHLA to BB-plus from BBB-minus and assigned a negative outlook. At the same time, S&P removed the rating from CreditWatch where it was placed with negative implications on Nov. 4, 2024, when it lowered the rating to BBB-minus from BBB.

CHLA had carried a negative outlook from Moody's since December 2024 because of weakened state revenues and the impact of the Change Healthcare cyber attack.

Change is a healthcare payment cycle management company that handles one in every three patient records in the U.S., according to the Department of Health and Human Services. 

The downgrade "reflects a material decline in liquidity and operating performance in excess of expectations from our most recent review," Moody's said. "A key driver of the weak performance is CHLA's heavy reliance on state funding due to its significant Medicaid exposure, which reflects its high social risk and is a primary driver of this rating action."

The review for further downgrade could bring a multi-notch cut, and Moody's said it will assess the risk of additional liquidity and cashflow losses in the near term.

Moody's described CHLA as having a vital role as a premier teaching and research institution and as a leading provider of high-acuity pediatric services, tempered by its very weak financial performance. 

In referencing its dependence on Medicaid, Moody's said delays in receiving provider fee funds, combined with weak operating cash flow, have led to a sharp decline in liquidity, with 29 days of unrestricted cash on hand as of September 2025. 

"Nevertheless, planned monetization of provider fee funds via a third-party transaction is expected to generate approximately $64 million in cash inflows, stabilizing days cash near 40 days," Moody's said.

CHLA also has tapped advice from external consultants to identify $100 million in operational improvements over the next two years, including labor-related savings and revenue enhancements.

The hospital announced in August it would lay off 253 employees and restructure 183 other positions.

"Failure to enhance core operating performance may precipitate further declines in both days cash and cash to debt ratios, exacerbating already weak levels," Moody's said. "Positively, CHLA's strong reputation is expected to sustain robust fundraising efforts, supporting its sizable restricted investment portfolio of over $400 million, which in turn benefits operations, capital initiatives, and research programs."

A hospital spokesperson failed to respond to a request for comment.