Fitch Affirms Indian Health Council's (California) 1999 COPs at 'BBB-'; Outlook Stable

2008-11-18 22:53:01 -

Fitch Ratings has affirmed and removed from Rating Watch Negative the 'BBB-' rating on approximately $2,525,000 outstanding certificates of participation (COPs) evidencing proportionate Interests of the Holders Thereof in Installment Payments to be paid by the Palomar Pomerado Health System (a California Local Health Care District) from Purchase Payments to be received from Indian Health Council, Inc. (IHC). The Rating Outlook is Stable.
The Rating Watch removal reflects IHC's ability to consistently obtain a default waiver from the bond trustee in relation to the annual audited financial statement being released later than required by the bond documents. According to IHC, the stringent federal disclosure rules pertaining to federal grants (IHC relies heavily on proceeds from the Indian Health Services) make it difficult to meet the bond disclosure covenants.
The 'BBB-' rating affirmation and Stable Outlook are primarily supported by the lock-box mechanism that ensures federal appropriations flow directly from the government to the trustee to be held for debt service before IHC receives the remainder, effectively ensuring that the certificate holders are paid before any other debt. Also supporting the rating and Stable Outlook is IHC's essentiality of services and balance sheet strength. IHC is the only provider of healthcare services in a vast geographic region in San Juan County, California servicing roughly 15,000 clients. IHC's fiscal 2007 days cash on hand and debt-to-capitalization ratios of 98.1 days and 34.1% compare well to Fitch's 'BBB' ratios of 123.5 days and 47.1%, respectively.
Concerns include IHC's small revenue base ($15 million in fiscal 2007), historic losses from operations (negative 1.8% operating margin in fiscal 2007), and reliance on a single source of funding. IHC relies heavily on annual Indian Health Services (IHS) payments which are based partly on the total population served, the scope of services provided, and the previous year's allocated dollar amount. Fitch believes that the possibility of a cut in the IHS payments is very remote given the program's history plus the stable trends in IHC's patient volume and the service area population trends.
IHC owns and operates community clinics which provide primary health care services, dentistry, and behavioral health to Native American reservations in San Diego County, CA. IHC's disclosure practices are considered weak by Fitch as the organization does not post to the nationally recognized municipal securities information repositories (NRMSIRs) or provide quarterly disclosure.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ... Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.


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