Hospital district in California files for Chapter 9 bankruptcy
LOS ANGELES — The Tulare Local Healthcare District in California’s Central Valley has filed for Chapter 9 bankruptcy.
The filing came Saturday, according to a document posted by the publication ourvalleyvoice.com.
Moody’s Investors Service had downgraded the district's general obligation bonds to junk level Ba2 from Baa3 two days before a Friday emergency meeting at which the district board voted to file. Moody's also assigned a negative outlook to the $84.1 million of debt.
Fitch Ratings downgraded $13.7 of series 2007 fixed-rate revenue bonds issued by the health district, and the district's issuer default rating, to CC from B on Sept. 6 citing probable default risk. Fitch also maintained a negative outlook.
Fitch also wrote that “an inability to restore liquidity by the end of September will result in further negative rating action.”
The Sept. 6 ratings report is Fitch’s most recent report, according to a spokesman.
The healthcare district reportedly had bounced paychecks and has multiple lawsuits currently pending against it for nonpayment and is in conflict with the private firm it has hired to operate its Tulare Regional Medical Center.
Dr. Benny Benzeevi, the CEO of Healthcare Conglomerate Associates, had threatened to shut down the hospital Wednesday if the board didn’t pursue a loan. HCCA's contract to oversee day-to-day operations of the hospital could be invalidated under the bankruptcy.
Benzeevi could not be reached for comment.
Both Moody's and Fitch Ratings cited relations between the board and the management company in ratings downgrade reports.
“The negative outlook reflects the considerable challenges facing the district with two consecutive years of operating income and patient utilization declines and an eroded cash position,” Moody’s analysts wrote last week.
“The district’s failure to secure financing for completion of a new medical tower increases the likelihood of continued deterioration in these metrics,” Moody’s said. “Dysfunctional board relations, combined with weak reporting and oversight practices, could prevent effective decision making, increasing the likelihood of further credit deterioration.”
"The downgrade to CC represented "very high levels of credit risk, reflecting TRMC's continued delays in executing external liquidity agreements to bolster working capital and heightened political instability at the TRMC board level,” Fitch analysts wrote.
"The tower project has been delayed from an original 2012 completion date due to construction problems, ensuing litigation with the project's contractor, and challenges in securing project funding," Fitch said in an August report.
In 2016, voters rejected a $55 million GO bond measure to raise money to finish the project.
"Completion of the project is essential to mitigate out-migration trends," Fitch said in August.
Fitch also cited concerns about receipt of timely and reliable information adding that maintenance of the rating is dependent on management's ability to provide timely and reliable information.