Outlook boost for California's largest public healthcare district

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The Escondido, California-based Palomar Health public hospital district scored an outlook revision to positive from stable from Moody's Investors Service.

The outlook boost applies to the district's $597 million of junk-rated revenue bonds, and its its $657 million in investment-grade general obligation bonds.

Palomar runs three hospitals in San Diego County. It is the largest public health care district in California with over $800 million in revenues in fiscal 2019 and more than 29,000 admissions, Moody's wrote Tuesday.

Moody’s affirmed Palomar’s Ba1 revenue bond rating while boosting the outlook to positive.

Moody's cited improved operations in fiscal 2019 following a downturn in 2018, and the expectation of continued improvements in operations, liquidity and debt measures.

The GOs were affirmed at A2.

Their new positive outlook on the GOs, Moody's said, reflects the expectation that the district's tax base will continue to expand, supported by a strong regional economy; operating results will continue to improve; and that overall debt and balance sheet measures will improve over time.

The GOs are secured by the district’s voter-approved unlimited property tax pledge, which is collected by San Diego County and does not pass through the hospital's budget.

On Nov. 5, Fitch Ratings upgraded the hospital district's issuer default rating and several series of revenue bonds and certificates of participation to investment-grade BBB-minus from the junk rating of BB-plus. It assigned a stable outlook at the higher rating.

In October, it maintained a rating watch negative on Palomar Health's 2016 general obligation bonds that carry FItch's AAA rating based on pledged special revenue analysis.

Palomar is among seven special revenue ratings Fitch placed on negative watch in April — including four large school districts in California and Chicago — after an appeals court ruling in the Puerto Rico bankruptcy case challenged a long-standing assumption that special revenue bonds would continue to be paid in Chapter 9 municipal bankruptcies.

The ratings placed on negative watch in April involved utility and tax-supported ratings that are six or more notches higher than the government’s issuer default rating.

S&P Global Ratings upgraded the healthcare provider’s revenue bonds to BBB from BBB-minus in September 2018 citing improved operational performance, but downgraded the long-term and underlying rating on its general obligation bonds to BBB from A.

The rating changes are a result of S&P's revised rating criteria published in March 2018.

“In our view, the district’s strong tax base, GO taxing ability, and strong market share are positive credit factors,” S&P analyst Martin Arrick wrote. “However, they are partly offset by a high debt load, weak financial profile and broad healthcare industry challenges.”

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Ratings Not-for-profit healthcare Revenue bonds California Municipal Finance Authority California