NEW YORK - Moody's Investors Service said it has downgraded Washington Township Health Care District, Calif.'s (WTHCD) long term revenue bond rating to Baa1 from A3, affecting $232 million of rated revenue bonds outstanding. The outlook is negative.
The District's Series 2006 and 2009 general obligation bonds are rated Aa2 on review for downgrade. The bonds are secured by the district's voter-approved unlimited property tax pledge. Bondholders of the general obligation bonds do not have any recourse to the hospital for payments under the bonds. Tax revenues and payments related to the general obligation bonds have been excluded from this analysis.
The rating downgrade to Baa1 and the assignment of a negative outlook is based upon the District's material deterioration in operating performance and large operating loss posted through nine months of fiscal year (FY) 2012 and the uncertainty of whether performance will return to stronger historical operating levels.
Management attributes the downturn to several factors including: a difficult operating environment impacting hospital operations; overall stagnant-to-declining utilization due to economic pressures; change in the mix of services provided with less elective surgical and more medical services; continued rise in uncompensated care; sizable decreases in cardiac services; and growth in labor costs.
Additionally, the operating loss is attributed in large part also to the challenges of managing and absorbing the large operating losses at the District's new medical foundation created in March 2011.
These challenges are partially offset with the District maintaining a healthy cash balance with conservative investment allocations, having an all fixed rate debt structure, and our expectation that operations should improve with management's turnaround plans underway.
However, failure to improve performance and a further weakening of debt coverage measures could further pressure the rating.