California hospital receives rating outlook boost to positive

Bonds

Marin General Hospital’s outlook was revised to positive from stable by Fitch Ratings, affecting $211 million in debt.

The positive outlook reflects Fitch’s opinion the Greenbrae, California-based facility should continue to make additional progress over the next 12 months-24 months in improving efficiency and other operational measures, according to Monday’s ratings report.

Those improvements are expected to support enhanced operational performance and unrestricted balance resource growth over the medium-term, Fitch said.

“Marin has an investment-grade rating, but is towards the lower end of that spectrum,” said Michael S.F. Burger, a director in Fitch’s U.S. public finance, not-for-profit healthcare division.

Fitch Ratings

“A majority of our rated Californian hospital borrowers are investment-grade with ratings ranging from BBB-minus to AA.”

Many of the one-off, smaller hospitals that have been hit the hardest and are taking longer to recover from COVID-19 financial pressures, are not rated by the three largest rating agencies — Fitch, S&P Global Ratings and Moody’s Ratings.

The outlook revision is specific to Marin, but the hospital sector as a whole has begun to shake off some of the challenges that COVID-19 brought fiscally and the personnel challenges presented by a shortage of nurses.

Marin could not be immediately reached for comment.

Overall hospital finance performance remained relatively stable during the month of August, and despite higher patient volume, revenue and expenses declined on a volume-adjusted basis, KaufmanHall said in an Oct. 3 forecast.

The median Kaufman Hall calendar year-to-date operating margin index reflecting actual margins for the month of August was 4.2%, according to KaufmanHall’s report.

The district’s BBB IDR is based on the assessment of MH’s operations as this is where the relevant operating risk for the district lies.

The AA-minus rating on the GO bonds is based on a dedicated tax analysis supported by legal opinions provided by the district, according to Fitch.

The bonds are rated above the district’s IDR due to the legal protections afforded to bondholders and the tax base’s strength and growth prospects

Additionally, Fitch anticipates manageable capex plans, which should further support balance sheet resource growth especially in the out years of Fitch’s scenario analysis.

The BBB rating is supported by Marin’s “positive income from operations generated in fiscal 2023 (December 31; year-end audited), which led to a 5.8% operating EBITDA margin, and marked the third consecutive year of positive and improved operating performance.

The hospital’s strong market position in Marin County, which is just north of San Francisco, was also cited by Fitch.
Fitch has affirmed Marin’s series 2023 taxable revenue bonds (issued by Marin General Hospital), series 2018A and 2018B bonds (issued by the California Statewide Communities Development Authority on behalf of Marin healthcare) at BBB.

Fitch has in addition affirmed Marin’s issuer default rating at BBB.

The rating agency also affirmed Marin Healthcare District’s IDR at BBB and MHD’s series 2017A unlimited tax general obligation bond ratings at AA-minus. This affects approximately $211 million of outstanding series 2017 ULTGO bonds issued by the district.

Fitch views favorably management’s executed strategic plan that includes key partnerships, efficiencies, and cost and revenue cycle discipline in a demographically attractive service area, which has helped support MH’s best operational year in the last five fiscal years. This strategy has also enabled more than 100% funding the of organization’s pension plan, which is an additional credit positive.

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