NEW YORK--(BUSINESS WIRE)-- In the course of routine surveillance, Fitch Ratings has downgraded the following Culberson County Hospital District, TX bonds:
--$270,000 limited tax general obligation bonds, series 2008 downgraded to 'BBB' from 'BBB+';
--$6.6 million limited tax general obligation bonds, series 2009 downgraded to 'BBB' from 'BBB+'.
At this time, Fitch also assigns an implied unlimited tax general obligation rating of 'BBB+'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--The downgrade reflects Fitch's increased focus on the financial risk related to operation of the hospital as outlined in the July 15, 2011 press release 'Fitch Refines Methodology for Rating Tax-Supported Debt of Public Enterprises'.
--The resource base is stable overall but the local area economy is limited with low income levels and a tax base concentrated in energy related companies.
--The district maintains marginal room under the tax cap.
--Culberson County Hospital (the hospital) is a 'Critical Access Hospital' (CAH), highlighting its essentiality to the community, and receives a favorable Medicare reimbursement due to its designation.
--Hospital operations are in line with a facility of limited size and scope, however, the revenue base is very small and there is little to no liquidity.
--The lease between the district and hospital operator terminates prior to bond maturity but allows for automatic 10-year renewals.
The bonds are secured by property tax levy limited to $0.75 per $100 taxable assessed valuation (TAV) on all taxable property within the county.
Culberson County Hospital is a 25 bed (14 staffed) critical access hospital in Van Horn, Texas. A recent expansion of the hospital facilities included a new emergency room, imaging center. The district's service area is predominantly rural and coterminous with Culberson County, which is located 120 miles southeast of El Paso with a population of approximately 2,300. The closest hospital facility is located in Pecos, Texas (Reeves County Hospital), approximately 85 miles away.
Tax base concentration in the district is high with the top 10 taxpayers comprising 51% of the tax base; the largest taxpayers are oil and gas companies. Fitch believes that the concentration risk is mitigated by the importance of these particular pipelines, and the long-term contracts that are typically used to support the financing and operations or pipelines. The district's tax base declined less than 1% in fiscal 2009 and approximately 4% in fiscal 2010, this is partially mitigated due to significant growth recorded in fiscal 2007 and 2008; it is expected that taxable value will not see material changes in fiscal 2011. Per capita income (2009) for the county is low at 63% of the national average. Unemployment rates are below state and national averages but recent activity shows declines in employment continuing to outpace declines in the labor force.
Hospitals designated as CAH are reimbursed by Medicare at cost plus 1%, so that rural hospitals can survive financially at very low patient volumes; approximately 80% of the hospital's patients are Medicare. In fiscal 2009, the district's unreserved general fund balance was a nominal $500,000 but represented a sizable 23% of district spending. Total fund balance decreased approximately of $400,000 over the prior year, key elements in the decrease were the pay-off of notes payable and a decrease in the maintenance and operations tax rate as well as an increase in costs associated with indigent care. The district currently levies a tax of $0.60, subject to the $0.75 statutory limitation. Debt service levy in fiscal 2011 was $0.23 or 38% of the total levy; the remaining $0.37 was levied for operations.
Despite the decline, general fund balance remains adequate for the rating level and the district has indicated that they are committed to maintaining a tax rate that allows it to meet its obligations. Fiscal 2010 audited results are not available however the district did not expect any material changes to fund balance. The district also has a reserve account for emergency use, as of fiscal 2009 the balance in the reserve account was $270,000 or 13% of expenditures.
The district's debt burden is moderate at $2,861 per capita but lower compared to market value at 1.7%; there is no plan to issue additional debt. The district itself has no employees and therefore does not have any pension or other post employment obligations.
The hospital is leased to and operated by Preferred Hospital Leasing Van Horn, Inc and as such the district's operating revenues are limited to the O&M management levy proceeds after indigent care expenses are subtracted. Liquidity levels are low at approximately 12 days of operating expenses in fiscal 2010 and the hospital has experienced volatility in financial performance associated with the small revenue base. The hospital saw additional financial pressure in fiscal 2011 and to date in 2012 from a lower Medicare census due to the departure of the hospital's physical therapist. The position has now been re-staffed and Medicare utilization is back up to expected levels.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 08, 2010.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Cindy Stoller, +1-212-908-0526
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Steve Murray, +1-512-215-3729
Jessalynn Moro, +1-212-908-0608
KEYWORDS: United States North America New York Texas
INDUSTRY KEYWORDS: Health Hospitals Professional Services Finance