OREANDA-NEWS. S&P Global Ratings assigned its 'BBB-' long-term rating to Palomar Health (formerly known as Palomar Pomerado Health), Calif.'s series 2016 revenue refunding bonds and existing series 2010 revenue bonds. The outlook is stable.

Recently, S&P Global Ratings also assigned its 'A' rating to Palomar Health's general obligation (GO) bonds (for more information on the GO rating, see the article published Sept. 22, 2016, on RatingsDirect).

"The rating reflects our view of Palomar Health's very strong enterprise profile combined with a vulnerable but improving financial profile," said S&P Global Ratings credit analyst Martin Arrick.

Overall its enterprise strength remains sound and reflects incremental growth in patient volumes and a sound market share in its defined primary service area (PSA) in northern San Diego County. While Palomar Health's financial profile remains vulnerable with a high debt load, modest unrestricted reserves, and pressured operations, its' overall financial profile has improved incrementally in every way, including reduced subsidies for its physician-related affiliate, Arch Health Partners, as well as improved operating income, excess income, cash flow, and unrestricted reserves. Our current assessment of Palomar Health's very strong enterprise and vulnerable profiles leads to an indicative rating of 'bbb'. Under our revised criteria for stand-alone hospitals we can adjust the final rating by one notch to reflect peer comparisons and a more holistic view of the credit profile, which have done to arrive at a final rating of 'BBB-'.

The stable outlook reflects our view of management's continued progress in restoring operational performance over the past few years, as demonstrated by improved results though fiscal 2016. In our view, the district's strong tax base, GO taxing ability, and strong market share are positive credit factors, though they are partly offset by, in our opinion, a high debt load and broad health care industry challenges.

Should the demonstrated improvement in both patient volumes and a broad array of financial metrics not be sustained, a downgrade or a negative outlook is possible within our two-year outlook window.

In our view, Palomar Health's strong tax base and sound enterprise profile could support a higher rating over time, and future rating improvement would be premised on continued incremental improvement across income statement and balance sheet metrics.