Fitch Ratings has affirmed the ‘B’ rating on $15,230,000 series 2007 fixed-rate bonds issued by the Tulare Local Health Care District doing business as Tulare Regional Medical Center (TRMC). The Rating Watch Negative has been removed and the Rating Outlook is Stable.
The removal from Rating Watch Negative reflects growing progress on construction plans achieved over the last six months. A settlement was reached with the previous contractor in July. A new team has been put in place under HealthCare Conglomerate Associates’ (HCCA) leadership, and a completion plan has been established. Currently, TRMC is evaluating various funding options, but no new debt is expected at the TRMC level.
The Stable Outlook reflects a dramatic turnaround in operating and financial performance since Fitch’s last review in February. TRMC posted an operating loss of $3.9 million through the six months ending December 31, 2013, but a positive operating income of $1.6 million in the second half of the following year. Improved operating margin of negative 3.3% at fiscal year ended (FYE) June 30, 2014 (unaudited interim results) was attributable to revenue enhancement as well as expense reduction initiatives. Fitch believes the positive trend over the last few months indicates performance improvement plans taking hold and signal recovery.
Considerable amount of uncertainty around the timing and funding sources remain, although meaningful progress has been made over the last six months. Fitch believes that the hospital can continue to operate without completion of the project over the near term. Further, additional debt funding secured by the revenues of the hospital is not expected to be pursued over the near term.
Tulare Local Health Care District, dba Tulare Regional Medical Center, owns and operates a 112-bed hospital in the city of Tulare. Total operating revenue in FYE June 30, 2014 was $68.6 million. Since January, TRMC has been managed by HealthCare Conglomerate Associates under a management agreement.
TRMC has a construction project in progress featuring a 24-bed emergency department, a new diagnostic department, a 16-bed obstetric unit, four surgery suites, and 27 new private patient rooms meeting seismic requirements. This new expansion tower was initially slated to open October 2012, but suffered disruptions due to concrete delamination issues and ensuing conflicts with the contractors.
Over the last six months, TRMC was able to reach a settlement agreement with the previous contractors and put a makeup schedule and budget in place. The completion of the project is now pending a funding source, with several options currently under evaluation. Fitch assumes that the ultimate decision will not have a material impact on TRMC’s solvency, and will evaluate any impact of funding sources after plans are finalized and disclosed.