Barlow Respiratory Hospital, CA, Assigned 'BBB' Issuer Credit Rating; Outlook Stable

CENTENNIAL (S&P Global Ratings) May 24, 2019--S&P Global Ratings assigned its 'BBB' issuer credit rating to Barlow Respiratory Hospital, Calif. The outlook is stable.
"The rating reflects Barlow's unique market position in the Los Angeles area as a leading provider of narrow respiratory service lines," said S&P Global Ratings credit analyst Chloe Pickett. Barlow specializes in weaning patients off ventilators, for which the hospital has built a solid reputation, and, as such, pulls patients throughout Southern California and the state as a whole. Although demand for Barlow's services is steady, the hospital is limited in size and capacity and is highly concentrated in governmental payers, specifically Medicare. Despite a limited revenue base, the hospital consistently generates healthy operating results, cash flow, and days' cash on hand. Barlow is undertaking a large-scale capital project, renovating an existing facility on its campus to move and expand the size of its inpatient rooms. To fund the project, it anticipates issuing up to $40 million in privately held and public debt, which we have factored into our analysis. We also factored in negative adjustments due to Barlow's revenue base of less than $150 million and concentrated specialty service niche, though the specialty services contribute to the hospital's reputation.
Barlow is a 94-bed long-term acute care hospital located near downtown Los Angeles that specializes in respiratory conditions. The hospital also has two smaller locations around the Los Angeles area in Van Nuys and Whittier. It has a reputation as a pioneer in weaning patients off ventilators and it attracts patients throughout the region. It treats a variety of respiratory illness as well as other limited services if it has the capability. Though admissions are modest, the hospital is typically at or near capacity throughout the year.
The stable outlook reflects our view of Barlow's solid market position and consistently healthy operating results, which we expect the hospital to maintain over the outlook period.
We believe Barlow has ample flexibility at the 'BBB' rating, though we could revise the outlook or raise the rating over the long term if the hospital is able to grow its patient and revenue base while maintaining its financial position. In addition, given the scale of the capital project we would not foresee raising the rating or revising the outlook until completion of the project.
We could revise the outlook or lower the rating if Barlow's market position significantly deteriorates or if there is a sustained, material downturn in operating performance or weakening balance sheet metrics. In addition, if the anticipated debt issuance is materially higher than our expectations at the time of this report, we could lower the rating.
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