Moody's Investors Service said it has downgraded to A2 from Aa3 the rating on King County Public Hospital District No. 1, Wash.'s limited tax general obligation bonds outstanding in the amount of $223.9 million.

Concurrently, Moody's has downgraded the district's issuer rating from Aa2 to Aa3.

The GOLT bonds are a general obligation of the district for which it has covenanted to budget and levy ad valorem taxes within the constitutional and statutory limitations of non-voter approved debt.

A stable outlook has also been assigned to the district's ratings.

The downgrade of the district's GOLT rating to A2 from Aa3 primarily reflects inadequate coverage of annual GOLT debt service provided by the current regular property tax rate. Reliance on operating revenues to meet portions of GOLT debt service requirements exposes the GOLT bonds to risks from healthcare operations.

Additionally, the portions of GOLT debt service not met by property taxes and fulfilled by operating revenue are subordinate to the district's outstanding revenue bonds, currently outstanding in the amount of $82.5 million (not rated by Moody's).

Some uncertainty also remains regarding the alliance between the district and the University of Washington, with legal motions likely to continue for several months or longer.

The downgrade of the district's issuer rating to Aa3 from Aa2 primarily reflects the increasing competitive environment faced in the Puget Sound Region in recent years and the district's exposure to healthcare enterprise risks. The Aa3 issuer rating also incorporates its sizeable tax base, the above average wealth levels found in the district's service area, strong market position, satisfactory financial operations, and manageable debt levels.

The stable outlook reflects Moody's expectations that operating cash flow margins will continue to be more than sufficient to cover both debt service on the district's revenue bonds as well as any shortfall from property taxes on the district's GOLT bonds' debt service.

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