Loma Linda University Medical Center plans to issue $816 million in new debt in 2015 to fund a $1.05 billion construction project.

LOS ANGELES — Fitch Ratings downgraded to junk $683 million of Loma Linda University Medical Center, Calif. revenue bonds saying the hospital plans to issue more debt next year to tackle earthquake safety projects than it had anticipated.

Fitch dropped the rating to BB-plus from BBB-minus.

Citing similar concerns, Standard & Poor's on June 30 downgraded the debt to BB-plus from BBB.

The bonds were issued by the California Statewide Communities Development Authority, a conduit issuer.

The 881-bed acute care teaching hospital 60 miles east of Los Angeles is part of a conglomerate that includes four hospitals - University Hospital, Children's Hospital, East Campus Hospital, and the Heart and Surgical Hospital. The hospital system also has five affiliates for a total system of 1,076 licensed beds.

Fitch's downgrade reflects LLUMC's plan to issue $816 million of additional debt in second quarter 2016 to fund a portion of the cost of its campus transformation project due to state seismic-safety requirements, analysts said in the Sept. 9 report.

"Although these plans have always been on the horizon, the rating downgrade reflects the magnitude of the expected financing and the increased certainty of the project including the timing and scope," wrote Fitch analysts Emily Wong and Emily Wadhwani.

The hospital plans to start construction in March 2016 and complete by December 2019, $1.05 billion in seismic projects designed to meet state mandates. The project expands the campus by 989,000 square feet adding two new patient towers, new emergency rooms, operating rooms, diagnostic and imaging services and a birthing center.

Both rating agencies maintained negative outlooks on the bonds.

"Given the significant size and scope of the project, management's ability to execute will be a key rating determinant," Fitch analysts said. "There could be further rating movement if there are material changes in the campus transformation plan and/or if current operating performance is not sustained."

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