Fitch Ratings, an international ratings agency providing issuer and bond ratings and more, has downgraded the Dallas County Hospital District from an “AA+” to an “AA” bond rating and removed the hospital district from its rating watch evolving list.
The district’s downgraded bonds include $38.3 million of series 2013 limited tax bonds, $222.5 million of series 2009B limited tax bonds, and $457.7 million of series 2009C limited tax bonds.
Fitch claims the outlook for DCHD is “negative,” mostly because of its recent financial trends. The report states DCHD’s financial performance has deteriorated over the last two fiscal years. Fitch claims 2016 fiscal results showed operational weakening, given its -7.5 percent operating margin, 0.8 percent operating EBITDA margin, and -5.1 percent excess margin.
Moreover, Fitch reports DCHD maximum annual debt service coverage fell to a low 0.7x in fiscal 2016 from 2.0x in fiscal 2015. While the company acknowledges DCHD’s weaker operations could be attributed to increased operating costs for Dallas’ new hospital, ultimately DCHD’s strong tax base, available taxing margin, and diversified economy salvaged its rating.
DCHD currently has about $719 million in outstanding bonds carrying a maximum annual debt service of $44.7 million, after deducting subsidies. Fitch says it “expects Dallas County Hospital District to stabilize their financial profile through improvements of their healthcare operations and/or use of their ad valorem taxing capacity. An inability or unwillingness to do so could pressure the rating.”
Dallas County Hospital District is the largest county hospital district in Texas. It reported total operating revenue of $2.2 billion in fiscal 2016, including approximately $536 million in ad valorem tax support. DCHD remains the largest Level I trauma center in the area and operates the largest civilian burn center in the state. DCHD’s key role in its community as a safety net hospital is viewed as a credit positive.