Fitch Ratings said it has downgraded to B-plus from BB-plus Tulare Local Health Care District, Calif.'s $15.7 million refunding revenue bonds, series 2007.
The rating outlook is revised to negative from stable.
Debt payments are secured by a pledge of the gross revenues of Tulare Local Health Care District.
A fully funded debt service reserve fund provides additional security.
The multi-notch downgrade is driven by a rapid decline in Tulare's overall financial profile in fiscal year ended June 30, 2012 (unaudited interim financials), with continued deterioration through the six-month interim period ended Dec. 31, 2012.
Performance has resulted in negative debt service coverage for both periods and Tulare is likely in violation of its debt service coverage covenant for fiscal 2012. The fiscal 2012 audit and debt service coverage covenant calculation are still unavailable.
Impacted by challenged patient utilization and increased bad debt, profitability took a sharp turn as the district posted large operating losses of $7.3 million in fiscal 2012 and $3.8 million through the interim period, respectively.
Unrestricted cash and investments declined sharply to $10.5 million at Dec. 31, 2012 from $24.5 million at fiscal year-end (FYE) 2010 due to increased capital investments and negative operating cash flow. Additionally, debt load increased in December 2011 due to a $6 million loan to finance certain equipment. Expected further demand on liquidity for the construction project presents significant concerns.
The completion of the new bed tower that was initially scheduled for October 2012 has been delayed due to structural problems related to the concrete used on certain floors. Tulare is currently developing a recovery schedule and evaluating the amount of additional funding necessary to complete the project.