California hospital receives rating outlook boost to positive

Marin General Hospital’s outlook was revised to positive from stable by Fitch Ratings.

It affirmed the California public hospital district’s revenue bonds and issuer default rating at BBB, and its unlimited tax general obligation bonds at AA-minus.

The positive outlook reflects Fitch’s opinion the Greenbrae, California-based facility should continue to make additional progress over the next 12 months-24 months in improving efficiency and other operational measures, according to Monday’s ratings report.

Those improvements are expected to support enhanced operational performance and unrestricted balance resource growth over the medium-term, Fitch said.

“A majority of our rated Californian hospital borrowers are investment-grade with ratings ranging from BBB-minus to AA,” said Fitch analyst Michael S.F. Burger.

Many of the one-off, smaller hospitals that have been hit the hardest and are taking longer to recover from COVID-19 financial pressures, are not rated by the three largest rating agencies — Fitch, S&P Global Ratings and Moody’s Ratings.

The Marin district’s $211 million of voter-approved GO bonds “are rated above the district’s IDR due to the legal protections afforded to bondholders and the tax base’s strength and growth prospects,” Fitch said.

The outlook revision is specific to the Marin issuer, but the hospital sector as a whole has begun to shake off some of the challenges that COVID-19 brought fiscally and the personnel challenges presented by a shortage of nurses.

Marin General Hospital officials could not be immediately reached for comment.

Overall hospital finance performance remained relatively stable during the month of August, and despite higher patient volume, revenue and expenses declined on a volume-adjusted basis, KaufmanHall said in an Oct. 3 forecast.

The median Kaufman Hall calendar year-to-date operating margin index reflecting actual margins for the month of August was 4.2%, according to KaufmanHall’s report.

The district’s BBB issuer default rating is based on the assessment of the Marin hospital’s operations as this is where the relevant operating risk for the district lies.

The AA-minus rating on the GO bonds is based on a dedicated tax analysis supported by legal opinions provided by the district, according to Fitch.

Additionally, Fitch anticipates manageable capex plans, which should further support balance sheet resource growth especially in the out years of Fitch’s scenario analysis.

The BBB rating is supported by the Marin district’s “positive income from operations generated in fiscal 2023 (December 31; year-end audited), which led to a 5.8% operating EBITDA margin, and marked the third consecutive year of positive and improved operating performance.

The hospital’s strong market position in Marin County, which is just north of San Francisco, was also cited by Fitch.

Fitch views favorably management’s executed strategic plan that includes key partnerships, efficiencies, and cost and revenue cycle discipline in a demographically attractive service area, which has helped support MH’s best operational year in the last five fiscal years. This strategy has also enabled more than 100% funding the of organization’s pension plan, which is an additional credit positive.