LOS ANGELES — Moody's Investors Service placed Antelope Valley Healthcare District's Baa3-rated revenue bonds on review for downgrade following the unexpected resignations of the chief executive officer and the chief financial officer.

The review impacts $134 million in outstanding debt for the Lancaster, Calif.-based district, which operates the 420-bed Antelope Valley Hospital in northern Los Angeles County in the Antelope Valley of the western Mojave Desert.

The recent report follows Moody's decision in November 2012 to affirm the rating at Baa3, but revise the outlook to negative from stable.

A one-notch downgrade would bump the hospital to speculative grade.

Analysts are also concerned about the hospital's announcement in November 2012 that it won't meet its rate covenant of 1.3 times MADS coverage in fiscal 2013 due to additional expenses to be incurred before the end of the fiscal year. It expects coverage to be above 1.1 times, but coverage below 1.3 times is considered a technical default with the remedy being a requirement that a consultant be engaged.

The review is expected to last for 90 days, according to Daniel Steingart, Moody's lead analyst for the district.

Moody's analysts primarily attributed the review for downgrade to the recent resignations of AVHD's chief executive officer and chief financial officer. Edward Mirzabegian, the CEO, resigned on May 1 and Cheryl Tong, the CFO, resigned on May 30.

Mirzabegian accepted a position as the corporate CEO of Avanti, a four-hospital system based in El Segundo, Calif., located in southern Los Angeles County. The CFO's reason for departure has not yet been announced.

On June 3, Pamela Hinson was appointed interim administrator of the Antelope Valley Hospital until a permanent replacement can be found for Mirzabegian. The board has formed a search committee to replace the CEO, according to Ellen Driscoll, the hospital's spokeswoman. How replacement of the CFO will be handled has not been announced.

Hinson has worked in healthcare revenue cycle management throughout Southern California for over 35 years, according to the release. Prior to joining AVH in 2007, she held various executive-level positions focused on hospital operations and revenue-cycle.

The hospital, which employs 2000 people, is the region's only full-service hospital and the only hospital in the area that provides obstetrical services.

Steingart said the hospital's virtual monopoly in the area is considered a strength.

In addition to concerns about the top-level management changes, Moody's analysts said the review was also prompted by low levels of operating performance and thin debt service coverage levels that could weaken significantly in the absence of permanent leadership.

Although operating performance through nine months of fiscal year 2013 of 5.2% operating cash flow is improved over fiscal 2012 of 3%, AVHD believes it will not meet its rate covenant of 1.3 times MADS coverage in fiscal 2013 due to additional expenses to be incurred before the end of the fiscal year. AVHD does expect coverage to be above 1.1 times; coverage between 1.1 and 1.3 times is considered an event of default and the remedy is the requirement to engage a consultant.

"Our review will focus on the search for a new CEO and other senior management members, the operational priorities of interim leadership, and actions the board is taking in the interim," analysts said in the report. "Key rating factors will include the time AVHD is expected to operate without permanent leadership and our expectations of future performance including the 2014 budget, labor relations with a large unionized workforce, and other operational initiatives."

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