Moody's Investors Service said it has downgraded to A2 from the A1 the rating on Palomar Health's (formerly Palomar Pomerado Health) general obligation bonds.
The outlook remains negative.
The district's GO bonds are payable from property taxes which may be levied without limitation as to rate or amount for payment of principal and interest. The district is the largest public hospital district in California, covering 800 square miles of inland northern San Diego County (Aa1 issuer rating).
Concurrent with this rating review, Moody's has also downgraded the ratings on PH's revenue bonds to Ba1 from Baa3, and has maintained the negative outlook, affecting approximately $576 million of debt.
The downgrade reflects the weakened financial position of the district as reflected in the downgrade of the hospital's revenue bonds toBa1/negative from Baa3/negative.
The A2 rating also reflects the district's extremely large, diverse tax base which has held up comparatively well in the face of the residential real estate market collapse and the recent economic downturn. Indications are that the real estate market continues to improve, but even if the district's assessed value were to decline over the next year or two, the tax base size will continue to be sizeable for the current rating.
The negative rating outlook reflects the risks posed by the hospital's weakened liquidity, as reflected in the rating and outlook for the hospital's revenue bonds which was downgraded concurrently with the GO bonds.
If the district's liquidity deteriorates further, its GO bond rating would likely come under sufficient pressure to warrant a rating downgrade of one or more notches.
Another factor incorporated into the A2 GO rating is the weak structure of the district's GO bond portfolio, which has a very slow payout. The portfolio was structured based upon optimistic growth assumptions for the tax base which did not materialize, and in fact tax rates are higher than voters anticipated when they authorized the GO bond program.
