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US Public Finance

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Criteria Update

U.S. Not-for-Profit Hospitals and Health Systems Rating Criteria Update

Fitch Ratings completed the initial implementation of its U.S. Not-for-Profit Hospitals and Health Systems Rating Criteria as of July 9, 2018. We reviewed 125 existing issuers, or just under one-half of our total acute portfolio. 

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Demographic Volatility A Risk for Some States in Downturn

US states with the strongest and most stable demographic and economic factors are generally expected to be less impacted by a cyclical downturn than those with strong but more volatile underlying trends. We recently reviewed eight factors to assess demographic and economic trends at the US state level.

California Wildfires Unlikely to Affect U.S. Public Finance Credit Quality

Fitch Ratings sees no immediate credit impact on Fitch-rated U.S. public finance credits from the latest northern California wildfires, which are ongoing primarily in Shasta, Lake and Mariposa counties.  
 

US State Revenue Outlook is Uncertain

Fiscal 2018 revenues for many US states were notably higher than the prior year. However, most of the increases could be one-time, making future revenue forecasts less certain, Fitch Ratings says. 

US Public Power Criteria Revision

Fitch Ratings finalized its new criteria for U.S. public power systems, the changes of which are detailed in a new report and companion piece. These revisions will facilitate a more forward-looking, predictable approach to ratings and better highlight differences among credits in the same category.

Good 2018 Returns Are Little Help for US Public Pensions

Several public pension plans have announced solid investment returns as of fiscal year-end 2018, which for most pensions was on June 30, 2018. Fiscal 2018 gains for most are likely to be firmly ahead of their investment return targets. 

Medicaid Waiver Actions Limit US States' Cost Controls

Recent decisions concerning state Medicaid waivers will add to challenges states are facing controlling healthcare costs by limiting the ability to manage expenditure growth and potentially raising the number of uninsured.

U.S. Colleges and Universities Show Stable Liquidity for FY2017 Despite Pressures

Both public and private U.S. colleges and universities demonstrated stable debt burdens and liquidity in fiscal 2017 in the face of growing operating pressures. Trends highlighted in the median report and the Fitch Analytical Comparative Tool (FACT) show level debt burdens and steady to improving liquidity against expenses in fiscal 2017.
 

Nacogdoches Hospital (TX) Bondholders Not Insulated from Weak Operations

Recent news that Nacogdoches County Hospital District, Texas (NCHD) has retained attorneys to consider debt restructuring has sparked commentary that this is an example of uncertain bondholder protections in bankruptcy. 

Tariff Risk to US, Chinese Corporates Limited But Rising

The vulnerability of rated corporates in the US and China to initial rounds of tariffs by those countries is limited, due to either low direct exposure or the relatively strong global economy. However, tit-for-tat retaliatory actions could raise credit risk and in rare cases cause rating actions where issuers are already under pressure.

RelatedCredit Hotspot: Trade Protectionism

Teleconference

Toll Roads - 10 Years in Infrastructure

Senior Fitch analysts in a teleconference discussion on US Toll Roads.

This follows the publication of our recent report: Toll Roads – 10 Years in Infrastructure

Ongoing NAFTA Uncertainty Lifts Trade Risks for US States

Protracted uncertainty around the North American Free Trade Agreement (NAFTA) renegotiations could elevate risks for some US states with the most to lose from a NAFTA termination. These states export heavily to Canada and Mexico.

Fitch: Recent Healthcare Outlier Downgrades Not Reflective of Wider Trend

Fitch Ratings-New York-09 July 2018: Fitch Ratings does not consider two recent multi-notch downgrades affecting healthcare issuers in South Carolina, driven by extraordinarily large net pension liabilities, harbingers of wide-ranging rating actions in the healthcare sector or other sectors, including higher education.

10 Years in Infrastructure

Toll Roads, Airports, Power & Renewables

The Fitch Ratings series 10 Years in Infrastructure features three new special reports (no subscription required):

•  Toll Roads – 10 Years in Infrastructure

•  A Decade in Airport Ratings

•  10 Years in Power and Renewables - A Decade of Phenomenal Growth in Renewables

Agreement at Start of New Budget Year in Fitch's '5 U.S. States to Watch'

The new fiscal year began smoothly last week with most states passing budgets on time and with limited contention, according to Fitch Ratings in a new report that provides brief budgetary overviews for all Fitch-rated states.

California Better Equipped for Next Recession

There is a strong likelihood California's next governor will encounter recession, though a new Fitch Ratings report says that the state is fundamentally better positioned to withstand the next inevitable economic downturn.
 

Georgia Water Credits Risks Rise in Dispute with Florida

A recent Supreme Court decision sided with Florida in an ongoing dispute over water allocations between Florida and Georgia from the Chattahoochee and Flint River basin. The eventual outcome of this lawsuit could have credit implications for water utilities as it would raise the need for borrowing to create additional supply.

Fitch Upgrades DC to 'AA+' and Rates $476MM GOs 'AA+'; Outlook Stable

Fitch Ratings has upgraded the District of Columbia's (the District) Issuer Default Rating and the ratings on approximately $4.8 billion of general obligation (GO) bonds to 'AA+' from 'AA'.
 

Teleconference Replay

Exposure Draft Public Power Rating Criteria

Fitch Ratings held a teleconference to discuss the planned changes to the rating criteria for Public Power bonds.

Speaker:  Dennis Pidherny - Managing Director, Group Head, Public Power

Read report: Summary of the Exposure Draft: U.S. Public Power Rating Criteria

SCOTUS Janus Ruling Impact Limited for State and Local Credit

Today's Supreme Court ruling regarding the funding of public sector collective bargaining activities is not likely to have a meaningful effect on state and local government finances, according to Fitch Ratings.
 

Depletion of Alaska's PF Earnings Reserve a Possibility

Alaska's recent passage of the Permanent Fund (PF) Protection Act as a means for addressing ongoing projected budget gaps may result in the eventual depletion of the PF's Earnings Reserve (PFER). 

Special Report

Minor Stresses Emerging for U.S. NFP Children's Hospitals

Operational stresses in the general acute health care sector are beginning to seep into some performance metrics for U.S. not-for-profit children's hospitals.
 

Ruling Highlights Implementation Risk in Illinois' Enacted Budget

A decision last week by the Illinois Labor Relations Board (ILRB) could open up a $400 million hole in Illinois' fiscal 2019 budget, highlighting the implementation risks in a budget reliant on one-time items and policy measures with uncertain fiscal benefits. 

Path to Impactful U.S. Public Pension Reforms Paved by Court Decisions

The legal backdrop for U.S. state and local pensions has played a key role in reforms adopted by some states in 2018, although pensions in general still face an uphill climb to improve their funding levels, according to Fitch Ratings.
 

U.S. State Ratings Largely Stable as New Budget Year Begins

Forty-six states begin a new fiscal year on July 1, and the vast majority will do so with a Stable rating outlook. The majority of Fitch's U.S. state rating outlooks are Stable and expected to remain so. 

State and Local Governments Feel Pinch of Budget Pressure

Laura Porter, Managing Director at Fitch Ratings, talks about her firm's report on budget pressure on state and local governments. She speaks in this week's Muni Moment with Bloomberg's Taylor Riggs on Bloomberg Markets. RelatedUS State Spending Pressure Will Rise on Higher Healthcare

US State Spending Pressure Will Rise on Higher Healthcare

Rising healthcare costs and retirement rates will increase budgetary pressure on US state and local governments. Our scenario analysis would see the share of state and local budgets that are allocated to healthcare and pensions rise by 800bps by 2025.
 

Water Conservation Regulations Not Likely to Affect California Utilities

Legislation establishing state-wide water conservation standards is not likely to affect ratings for California water utilities, according to Fitch Ratings. That said, rate affordability could become an issue over time.

Natural Disaster Risk Varies for U.S. State & Local Government Ratings

Natural disasters have become increasingly acute and chronic, which is presenting operational and financial challenges to some U.S. state and local governments, according to Fitch Ratings. The rating agency considers environmental factors in its U.S. public finance credit ratings through the lens of fundamental credit risk, as detailed in a new report.

Teleconference: Fitch Rates LINXS APM Project

Fitch Ratings hosted a call with investors to discuss its recent ‘BBB+ (EXP)’ of the California Municipal Finance Authority's (CMFA) approximately $1.2 billion senior lien revenue bonds.  The proceeds of which will be used by the borrower (LAX Integrated Express Solutions, LLC (LINXS)) to construct an automated people mover at Los Angeles International Airport.

SCOTUS Janus Ruling Impact Limited for State and Local Governments

A potentially landmark Supreme Court ruling concerning public school teachers and right-to-work laws is not likely to have a meaningful effect on state and local government finances, according to Fitch Ratings in a new report.

Hawaii Credits Unaffected as Volcano Continues

Based on Fitch Ratings' review of initial reports and damage assessments, rating changes are unlikely for Hawaii's U.S. public finance, port and airport credits following ongoing volcanic activity on Hawaii Island. Fitch does expect the state's tourism-driven economy to feel some adverse peripheral effects from the volcanic activity in the short term, but ultimately the fiscal impact of the eruption on rated entities in Hawaii will be largely mitigated by Hawaii's financial flexibility, support from federal and state governments, and private insurance policies.

Build IL Downgrade Contrasts State/Local Dedicated Tax Approach

The Build Illinois downgrade highlights Fitch Ratings' credit view that the framework for rating U.S. state dedicated tax bonds must differ from that for rating local government dedicated tax bonds because local government security structures fall under Chapter 9 of the U.S. Bankruptcy Code. In contrast, there is no bankruptcy framework for U.S. states, which means that evaluating the prospects for varying state security structures at a time of fiscal distress is by necessity somewhat judgemental.

Fitch Downgrades Illinois' $2.5B Build Illinois Bonds to 'A-'; Outlook Negative

Fitch Ratings has downgraded and removed from rating watch negative the ratings on the following Build Illinois sales tax revenue bonds of the state of Illinois to 'A-' from 'AA+':

  • $1.41 billion senior obligation bonds;
  • $1.08 billion junior obligation bonds.

Fitch placed the bonds on Rating Watch Negative on April 4 following release of its revised criteria for rating U.S. state dedicated tax bonds.

Budget Impact of Marijuana Legalization Modest for NYC

The potential budgetary impact of legalizing marijuana for recreational use in New York State would be modest for New York City with no impact on credit quality, according to Fitch Ratings. Fitch expects the decision to legalize in New York State, which as a whole would also see modest revenue gains, will be based on political and public policy considerations rather than budgetary ones.

California Solar Rule Neutral for Resi, Power Issuers

We do not expect the building requirement to have a material effect on public power issuer ratings. The requirements are consistent with the ongoing trend toward greater energy efficiency and reduced per capita electricity consumption in the state. Public power utilities have been planning for, and adapting their long-term supply strategies to, responding to this trend. 

Seattle's Head Tax Unlikely to Affect Credit

Seattle's city council unanimously adopted a measure to impose a $275 per employee tax on companies that gross over $20 million annually. The city estimates it will generate roughly $47 million per year to address homelessness and housing affordability issues though its ultimate use will be determined along with the 2019 budget.

Fitch's Tolerance for US NFP Hospitals to Stay Viable and Profitable: Five Years

Capital projects are an inevitability in order for US not-for-profit hospitals to stay viable and so are the disruptions to profitability that arise from seeing those projects to fruition.

 

Taking those two commonalities into account, a question Fitch frequently receives from investors is "How long will you be patient with the rating before you see our improved results?" Fitch's answer: an uncharacteristically direct "five years". More specifically, Fitch's five-year scenario analysis, which offers a look ahead into a hospital's ability (or inability) to maintain its rating through a cycle.
 

Limited State, Casino Impact From US Sport Betting Ruling

The US Supreme Court's decision to strike down a federal law banning states from permitting gambling on the outcome of sporting events will lead to an increase in the number of states permitting sports betting. However, those revenues will only have a small impact on overall gaming revenue and is unlikely to have a material adverse impact on Las Vegas' sports betting activity.

Illinois Securitization Structures Not Subject to State Revenue Diversion

Tax revenues sold to corporations such as Chicago's Sales Tax Securitization Corp. are not at risk of diversion under the Illinois Pension Code. Under a 2017 revision to the Illinois Municipal Code, home rule municipalities can sell revenues or taxes received from the state to not-for-profit corporations that serve as financing vehicles.

Kentucky Wired Wins Commonwealth Approvals; Funding Hurdle Remains

Although the Kentucky Wired PPP project has won legislative and gubernatorial support for appropriations and bonding authority, securing funding for an $88 million commonwealth commitment to resolve outstanding project issues remains a key financial hurdle.

US Pension Contributions Trending Higher but Pace Slowing

Actuarial pension contributions of state and local governments are and will continue to grow over time, though the pace has slowed following the rapid increases that took place immediately after the Great Recession.

Amazon HQ2 May Have Some Long-Term Credit Impact

The location of Amazon's second headquarters (HQ2) will not have a near-term impact on local government ratings or the housing market around the eventual winner. The jobs brought by HQ2 will only affect the local governments that can capture the attendant property, sales and income taxes.

Credit Hotspot: Trade Protectionism

US-China Tariffs Could Hurt Some US States In Midterm

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Tax Reform Raises Questions for Most US States' Revenues

"While most of the ripple effect will play out over time, provisions including the cap on SALT deductions are a likely trigger behind a spike in state revenue collections for the current fiscal year," said Director Eric Kim.

California Water Capital Spending to Rise as Operating Risks Mount

Capital spending at California water and sewer utilities is likely to increase to address water supply reliability and regulatory requirements. Capital investment is needed for infrastructure maintenance, water supply reliability, and new supply development.

HB 1539 Neutral to Northern Virginia Transportation Authority's Credit Quality

A proposal to repeal a portion of the revenues pledged to outstanding transportation special tax revenue bonds issued by the Northern Virginia Transportation Authority will not have an impact on its 'AA+' rated debt.

Revised US Public Finance Tax-Supported Rating Criteria

Fitch expects these changes will affect fewer than 10 ratings. Other revisions to the criteria simply clarify certain aspects of our approach for US state and local government credits. Related: US Public Finance Rating Criteria

Interactive

NAFTA: Trade in the Time of Trump

The smaller economies of the Upper Midwest and the Southwest border states would be the most negatively affected state economies if the US withdraws from the North American Free Trade Agreement (NAFTA), due to the states' high exposure to export trade with Canada and Mexico.

Contacts

Dan Champeau

Global

Dan Champeau

Analytical Group Head

+1 212 908 9188

Ann Flynn

Global

Ann Flynn

Business Group Head

+1 212 908 9152

Jack Archibald

US

Jack Archibald

Business - Fees

+1 212 908 0664

Jessalynn Moro

US

Jessalynn Moro

Head of Public Finance

+1 212 908 0608

Laura Porter

Tax-Supported - States & Locals

Laura Porter

Sector Head

+1 212 908 0575

Dennis Pidherny

Revenue-Supported - Public Power and Water & Sewer

Dennis Pidherny

Managing Director - Public Finance

+1 212 908 0738