Hospital credit rating downgraded again

Moody’s Investor Service downgraded WhidbeyHealth’s general obligation bonds for the second time.

Moody’s Investor Service downgraded WhidbeyHealth’s general obligation bonds for the second time this year and revised the outlook on all of its securities to negative.

Yet at the same time, the ratings company noted conditions that reflect favorably on the public hospital district’s credit rating, namely the hospital’s projected “incremental improvements to cash flow through year-end 2022 and a largely new management team that has a strategy for meaningful budgetary realignment.” Also, the ratings firm noted the district’s large and growing tax base and the stabilizing presence of Naval Air Station Whidbey Island.

Moody’s opined that the hospital district is positioned to avoid default on a $6.8 million line of credit as the repayment date was extended from June 1 to September 1. The hospital reported that repayment terms with Heritage Bank are under discussion.

“Moody’s reassessment confirms the beneficial work towards long-term financial sustainability that the district’s leadership has been working towards and acknowledges the improvements in cash flow through the year end 2022,” Jim Childers, interim CFO, said in a statement.

Moody’s Investors Service provides credit ratings on bonds based on the creditworthiness of borrowers and the perceived risk that they will default.

In March, Moody’s downgraded the hospital district’s unlimited tax general obligation bonds, affecting $44.9 million, to Ba2 from Baa3; the move was a significant downgrade from investment to non-investment grade. At the same time, Moody’s downgraded the limited tax general obligation bonds, affecting $12.3 million, deeper into non-investment grade to B3 from Ba2.

At that time, Moody’s predicted the hospital was unlikely to make payroll through mid-May unless it secured a $17 million loan. District officials weren’t able to obtain a loan because of credit problems, but the hospital was able to make payroll due to the county treasurer distributing property tax dollars more frequently and repayment of the line of credit being delayed, as well as other changes in hospital finances.

But even with the positive news, Moody’s sees risk. Last week Moody’s further downgraded the district’s unlimited tax general obligation bonds to Ba3 and confirmed the Ba3 rating on the limited tax general obligation bonds.

In addition, the outlook on all securities was revised to negative from the previous “ratings under review.”

“The negative outlook reflects our expectation that WhidbeyHealth continues to face a myriad of near-term challenges to restoring sufficient cash flow, producing accurate and timely financial statements, and implementing a plan that puts it on a path towards stabilizing its finances and operations,” Moody’s stated.