Moody’s Investors Service has downgraded the debt of the Antelope Valley Healthcare District into junk territory despite efforts by the public health care operator to avoid the rating.
The district, which owns and operates Antelope Valley Hospital in Lancaster, received a Ba2 rating, which is classified as a high-yield or junk bond. It previously had a Baa3 rating, the lowest level for investment-grade bonds.
The downgrade would raise the costs of borrowing, but “it does not reflect on our ability to maintain our current obligation to employees, hospital operations or payments to our bond holders,” the district said in a statement.
Moody’s conducted a review of the district’s finances last summer and decided to maintain its credit rating at the time in anticipation of improvements, including the hiring of a chief executive. In August, the district had a total of $134 million in outstanding debt stemming from past construction projects.
In November, the hospital hired Dennis Knox as chief executive to replace long-time leader Ed Mirzabegian, who resigned in May to take another job.
However, the hospital continues to face financial headwinds, as the local economy in the Antelope Valley reports some of the highest unemployment rates in Los Angeles County. In fiscal 2013, the hospital said it provided nearly $76 million in charity care, bad debt and unpaid costs of public programs, a 10 percent increase compared to the previous year.
“The management team is holding all departments and systems accountable so we can extract expenses while improving patient care and operations,” said Knox, in a statement. “We have already implemented significant measures to ensure the hospital achieves sustainable results as quickly as possible.”
The hospital district is a public entity, similar to a school district, that operates public medical facilities. The Antelope Valley Hospital is the largest hospital in the region with 420 beds.