The downgrade reflects “further thinning of liquidity resulting in 15 to 20 days cash on hand and limited ability to meaningfully improve given ongoing significant cash flow losses,” Moody’s said in a Feb. 12 report.
Moody’s said that although Palomar’s forbearance agreements reduce the risks of debt acceleration through January 2026, the two-hospital system’s very weak liquidity position challenges its short-term financial viability.
Palomar reported a $165.1 million operating loss (-18.5% margin) in fiscal 2024, which ended June 30. Moody’s downgraded Paloma’s rating to “B2” from “Baa3” in October.
Moody’s said in its Feb. 12 report that high expenses, large physician subsidies and an increasing governmental payer mix will continue to challenge performance. The ratings agency did note that the system, with consulting help, has identified opportunities for performance improvement in fiscal 2025. Those include potential savings related to its labor force, revenue cycle, physician enterprise, supply chain and purchased services.
The ratings agency also noted that Palomar has a leading market position and strong community support, which has helped fund major projects and support operations through tax revenues.
Palomar has a negative outlook with Moody’s, reflecting the “likelihood that liquidity will remain volatile and very weak at 15 to o30 days which increases risks for a default, bankruptcy filing or liquidation.”
