NEW YORK--(BUSINESS WIRE)--(This is a correction of a release published on Aug. 26, 2016. It updates the attached research report to include that the Issuer Default Ratings (IDR) of Culberson County Hospital District(TX), Dallas County Hospital District(TX), El Paso County Hospital District(TX), and Kalkaska County Hospital Authority(MI) were placed on Rating Watch Evolving (RWE).)
Fitch Ratings has placed the ratings of 25 tax supported hospital districts and authorities on Rating Watch Evolving, listed in the attachment. The action impacts approximately $5.6 billion of total debt outstanding.
The Rating Watch reflects the potential modification of ratings under the published U.S. Tax-Supported Rating Criteria on April 18, 2016. Ratings on Rating Watch Evolving have an equal chance of being upgraded, downgraded or affirmed. Fitch expects to resolve the watches within three months.
HYBRID ENTITIES: Hospital districts and authorities placed on Rating Watch are hybrid entities that combine traditional healthcare revenue streams that are supplemented by taxing authority and tax revenues. As such, Fitch applies both hospital and tax-supported criteria to analyze the issuer's tax-supported and revenue-supported debt.
ASSIGNMENT OF ISSUER DEFAULT RATINGS: Hospital districts and authorities are governmental entities that would utilize Chapter 9 under the US Bankruptcy code in the event of a bankruptcy filing. As such, Fitch expects to assign Issuer Default Ratings (IDRs) to these hospital districts and authorities utilizing the methodology under the U.S. Tax-Supported Rating Criteria together with a variation from the U.S. Nonprofit Hospitals and Health Systems Rating Criteria.
VARIATION TO HOSPITAL CRITERIA TO ASSIGN IDR: The resolution of the rating watch as it relates to assigning an IDR will be based on the application of the variation from the U.S. Nonprofit Hospitals and Health Systems Rating Criteria. Enhanced analysis under the variation relates to the evaluation of the strength of the tax revenues available to support operations. This evaluation is supported by Fitch's U.S. Tax-Supported Rating Criteria. This will include analysis of both tax revenue volatility, through the new Fitch Analytical Sensitivity Tool (FAST), and the value of taxing capacity relative to the issuer's potential revenue stress in a downturn. In certain cases, the rating of the revenue bonds and/or the GO bonds will be capped by the IDR.
RESOLUTION OF TAX-SUPPORTED RATING WATCHES: Where there is a security rating supported by pledged tax revenues, Fitch believes there may be a basis to maintain a rating of that security above the issuer's IDR as special revenue obligations under the bankruptcy code. Such tax-supported ratings on Rating Watch Evolving may be upgraded (or affirmed if already above the IDR) if a satisfactory special revenue legal opinion can be provided to Fitch. Absent a special revenue opinion (assuming no other exceptions in the criteria apply), tax-supported bond ratings will be downgraded to the level of the IDR to reflect the risk of insolvency proceedings that may stay all debt repayment.
RESOLUTION OF REVENUE BOND RATING WATCHES: Revenue bond ratings could be upgraded if Fitch's enhanced analysis of tax revenues for operations improves the overall operating profile of the entity, suggesting an IDR higher than the existing revenue bond rating. Revenue bond ratings may be affirmed if tax revenues for operations do not materially change the profile or downgraded as a result of credit deterioration since Fitch's last review.
Link to Fitch Ratings' Report: Correction: Fitch Places 25 Tax Supported Hospital Districts - Amended
Additional information is available on www.fitchratings.com.
Revenue-Supported Rating Criteria (pub. 16 Jun 2014)
U.S. Nonprofit Hospitals and Health Systems Rating Criteria (pub. 09 Jun 2015)
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
Dodd-Frank Rating Information Disclosure Form
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