Fitch Places El Paso County Hospital District, TX on Rating Watch Negative

Fitch Ratings has placed the following 'AA-' bonds for the El Paso County Hospital District, TX (the District) on Rating Watch Negative:

--$134.3 million combination tax and revenue certificates of obligation (CO) series 2013;

--$110.4 million general obligation (GO) refunding bonds series 2013

--$7.2 million GO refunding bonds series 2009;

--$116.3 million GO bonds series 2008A; and

--$1.5 million combination tax and revenue certificates of obligation series 2005.

KEY RATING DRIVERS

The Rating Watch Negative reflects heightened uncertainty over the impact of the El Paso Children's Hospital (EPCH) operations on district finances. Recent public announcements from EPCH regarding a possible bankruptcy filing to avoid a takeover by the University Medical Center (UMC) highlight a lack of ability to resolve organizational differences.

RATING SENSITIVITIES

Fitch's August 2014 downgrade to 'AA-' from 'AA' reflected declining UMC margins and liquidity due primarily to the inability of EPCH to make expected payments. The rating also incorporated Fitch's understanding that EPCH was actively seeking a strategic partnership with a third party provider, the probability of which now seems weaker.

SECURITY

The bonds are direct obligations of the district and are payable from an annual ad valorem tax, levied within the limits described by law. The property tax rate cannot exceed 75 cents per $100 taxable assessed valuation (TAV) for both operations and maintenance (O&M) and debt service.

CREDIT PROFILE

The El Paso County Hospital District (the District) covers a very large area, totaling 1,058 square miles, and operates the only public hospital located in its primary service area. UMC is a 394-bed acute care facility owned by the district with the legal responsibility to provide medical and hospital care to all El Paso County residents regardless of their ability to pay.

The El Paso Children's Hospital (EPCH) opened in February 2012 and was constructed with series 2008 bond proceeds. It is the first children's hospital in the region and is located within UMC facilities. The district owns the facility and leases it to the separately licensed non-profit EPCH, which has an independent board of governors.

Additional information is available in Fitch's see Fitch's Aug. 25, 2014 press release, 'Fitch Downgrades El Paso County Hospital District, TX GOs to 'AA-'; Rating Outlook Negative', and available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980551

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