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Antelope Valley Healthcare District, CA -- Moody's affirms Antelope Valley Healthcare District's (CA) Ba3; outlook negative

Rating Action: Moody's affirms Antelope Valley Healthcare District's (CA) Ba3; outlook negative

Global Credit Research - 25 Aug 2020

New York, August 25, 2020 -- Moody's Investors Service has affirmed the Ba3 assigned to Antelope Valley Healthcare District (CA). The rating action affects approximately $120 million of rated debt. The outlook is negative.

RATINGS RATIONALE

Affirmation of the Ba3 reflects Antelope Valley Healthcare District's strong market position, adequate operating margins and balance sheet measures, balanced against a long history of management turnover, which is a governance risk under the Moody's ESG classification, and high adjusted leverage when considering the organization's unfunded pension liability. An additional consideration is the fact that AVHD does not currently comply with seismic regulations, currently slated to go into effect in 2030.

The most immediate social risk is the impact of COVID-19. Unlike many other states, California did not mandate that hospitals stop providing elective services. Nevertheless, AVHD did experience a reduction in volume and revenue in Spring 2020. Although volumes have largely recovered, a high degree of uncertainty still remains around the longer term potential impact of COVID-19. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

RATING OUTLOOK

Maintenance of the negative outlook, despite our expectation of favorable operating results and stable cash flow in fiscal 2021, reflects concerns over management stability and long term plans to address seismic requirements.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING

- Stabilization of senior management over a multi-year period

- Ability to sustain positive operating margins and good cash flow over multi-year period

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING

- Unexpected management turnover

- Inability to secure funding sources to meet seismic needs

- Decline in operating performance or liquidity

- Violation of financial covenants

LEGAL SECURITY

The bonds are secured by a revenue pledge. Key financial covenants include minimum days cash on hand of 55 days and annual debt service coverage of 1.2x.

PROFILE

AVHD operates 420 licensed bed Antelope Valley Hospital, an acute care hospital located in Lancaster, CA. AVHD is a political subdivision of the State of California.

METHODOLOGY

The principal methodology used in this rating was Not-For-Profit Healthcare published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1154632. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Daniel Steingart Lead Analyst PF Healthcare Moody's Investors Service, Inc. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Eugene Spielman Additional Contact PF Healthcare JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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