NEW YORK--(BUSINESS WIRE)--Fitch Ratings has placed the 'AA-' rating on $38,310,000 of limited obligation sales tax bonds, series 2015A (Chilton County Hospital Project) on Rating Watch Negative.
The bonds are a limited obligation of the authority payable from a first lien on the proceeds of a 1% general sales and use tax levied and imposed within the county. The bonds are also secured by a cash-funded debt service reserve fund (DSRF) equal to maximum annual debt service (MADS).
KEY RATING DRIVERS
Sales Tax Authorization Challenged: The Negative Watch is based on litigation filed against Chilton County and the Chilton County Health Care Authority which challenges the validity of the sales tax pledged to bondholders and seeks its repeal on procedural grounds. A motion to stay the lawsuit has been granted pending a ruling in a similar case being heard by the Alabama Supreme Court (Jefferson County v. Taxpayers and Citizens of Jefferson County).
Unfavorable Outcome Unlikely, But Potential Consequences Severe: Fitch believes that it is unlikely that the state supreme court will rule the tax invalid; however, the assignment of the Negative Watch reflects the severity of the potential outcome of the case, which is inherently unknowable. A ruling in favor of the plaintiff would effectively leave bondholders in an unsecured position. An event of default would be considered imminent or inevitable absent other action, leading to a 'C' rating.
Constitutional Amendment Uncertainty: A constitutional amendment on the November ballot will in effect ask voters to ratify all prior local laws including the Chilton County sales tax. Fitch will monitor the results of the election but also the retroactive application of the amendment, if successful. It is not clear to Fitch that the constitutional amendment alone would resolve the issue.
Favorable Resolution of Litigation: Final resolution of the litigation pertaining to the legality of the pledged sales tax revenue in favor of the county and the authority would likely result in resolving the Negative Watch.
Sales Tax Repeal: Conversely, resolution that eliminates the sales tax without compensating action would likely result in a rating downgrade to 'C'.
The Chilton County Health Care Authority is a public hospital corporation authorized to acquire, construct, install, and equip and operate health care facilities within the county. The bonds were issued to fund a new 30-bed general hospital to meet the healthcare needs of the county, which had not been served by a hospital since 2013.
The pledged revenue consists of a 1% general sales and use tax authorized by the Alabama Legislature in 2014 for the explicit and sole purpose of providing funds to pay the costs of construction, maintenance and operation of hospital facilities in the county. Imposition of the sales tax received overwhelming support from county voters at an advisory referendum in June 2014 (80% pass rate).
The legal challenge arises from a seemingly narrow and technical issue having to do with the composition of a majority vote in the state legislature. The vote appears to have been taken in accordance with rules of the legislature; the constitutionality of that rule is the subject of the challenge. It appears that the Alabama Supreme Court has considered a very similar question previously, and concluded that it is the prerogative of the legislature to define its own rules for quorums and voting. However, there can be no certainty that the outcome will be favorable to the authority and Fitch has no basis for reaching a definitive legal conclusion.
For background information, see 'Fitch Rates Chilton County Health Care Authority, AL's Sales Tax Bonds 'AA-'; Outlook Stable' dated Oct. 22, 2015.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
Copyright (c) 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.