Texas issuer event of default sparks broader Moody’s review
Bloomberg News
A default by a Dallas County, Texas, mental health and disability services provider led Moody’s Ratings on Monday to place it and six other providers in the state under review for potential rating downgrades.
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UMB Bank, the trustee for $137.58 million of revenue bonds sold by Metrocare Services last year, issued
Although the trustee reported sufficient funds to make a Nov. 1 interest payment for the bonds, “the center is reportedly facing significant fiscal stress and may have missed payments on other financial obligations that constitute an event of default under the indenture,” according to Moody’s, which rates Metrocare’s bonds Aa3.
“The center’s fiscal stress reportedly stems from the combination of delays receiving certain state Medicaid reimbursements, flat reimbursement rates, and escalating costs for the variety of public mental health and intellectual and developmental disability services the center provides in its exclusive geographic area of operation,” the rating agency added.
Because the same combination of factors may be straining other providers in Texas, Moody’s put six other issuers under review: Behavioral Health Center of Nueces County, Camino Real Community Mental Health Mental Retardation Center, Harris Center for Mental Health and IDD, Heart of Texas Region MHMR Center, Texana Center and Tri-County Behavioral Healthcare.
Moody’s said their Aa3 lease appropriation ratings reflect the issuers’ role as the sole governmental authority directing state funding for essential federally- and state-mandated public mental health, intellectual and developmental disability services in their exclusive geographic areas of operation.
“The ratings also reflect reliance on general fund appropriations through the state to the Health and Human Services Commission for funds used to pay debt service that are allotted through contractual agreements and weaker legal structures than are typical of state appropriation debt due to the indirect contractual nature of the payment of those state funds,” Moody’s said.
The review will assess the nature of the default notice and potential strain on other providers to determine if the credit environment for their bonds has changed, it added.
