CHICAGO - More than $1.7 billion of borrowing is planned in the coming months by health care providers under a series of financings advanced this week by the Illinois Finance Authority board.
The board gave its final approval to Southern Illinois Healthcare's up-to $185 million issue, Advocate Health Care Network's $180 million issue, BroMenn Healthcare Hospitals' $50 million deal, and the University of Chicago Medical Center's $185 million transaction.
A series of other borrowers also won preliminary approval for their transactions in the works including Rush University Medical Center Obligated Group's $375 million issue, Silver Cross Hospital's $275 million sale, and the Carle Foundation's $450 million deal. Many are seeking new money - a move expected as borrowers wrap up their auction-rate and insured variable-rate refinancings driven by the credit crunch and downgrades of insurers.
Southern Illinois Healthcare would use the proceeds of its deal to refinance outstanding auction-rate debt from a 1998 issue and fund new projects including an expansion of its emergency department at Herrin Hospital and other renovations at its various facilities.
The deal includes a mix of fixed-rate and floating-rate bonds with the floating rate expected to carry a letter of credit from Bank of Nova Scotia. The fixed-rate piece is expected to carry insurance from Assured Guaranty Corp. RBC Capital Markets is the underwriter and Jones Day is bond counsel.
Fitch Ratings and Standard & Poor's rate Southern Illinois Healthcare A-plus. The rating is supported by strong profitability, the young age of its facilities and a leading inpatient market-share position. The system had $216 million of unrestricted cash and investments for fiscal 2008 that provided 322 days cash on hand and 4.2 times debt service coverage, according to Fitch.
Advocate would use its proceeds to finance its acquisition of Condell Medical Center in Lake County and a new patient tower at the facility. The two recently announced an agreement for Condell to join the Oak Brook-based Advocate network, and the Illinois Health Facilities Planning Board approved the marriage last month.
The system intends to use a fixed-rate structure but that could change, according to IFA documents. Citi is the senior manager and Chapman and Cutler LLP is bond counsel. Advocate carries ratings of AA by Fitch and Standard & Poor's and a Aa3 from Moody's Investors Service.
BroMenn would use proceeds of its transaction to refund its auction-rate securities from a 2004 sale. The system intends to issue fixed-rate bonds. Hospital officials expect to seek underlying ratings with the anticipation of receiving a credit of at least BBB-plus. Piper Jaffray & Co. is the underwriter and Jones Day is bond counsel. BroMenn operates two hospitals, a 224-bed facility in Normal and a 25-bed facility in Eureka.
The University of Chicago Medical Center will refund variable-rate debt sold in 1994 and 1998 that carries insurance from MBIA Insurance Corp. The medical center intends to issue about $110 million of fixed-rate bonds the week of Oct. 6 and then $75 million of variable-rate bonds supported by a letter of credit from Wells Fargo Bank NA about two weeks later. JPMorgan is the underwriter and Jones Day is bond counsel.
Urbana-based Carle Foundation will use about half of its proceeds to retire a taxable loan that refinanced all of its tax-exempt debt issued in 1998 and 2004 and the other half to finance various new projects. The foundation is building a new 348,000-square-foot bed tower attached to its existing hospital tower.
The Carle Foundation Hospital received a certificate of need from the state for the project last month. The hospital serves as the primary teaching facility for the University of Illinois at Urbana-Champaign.
About $290 million of the sale will be variable-rate and the other $160 million will be fixed-rate. The foundation carries an issuer rating of AA-minus from Standard & Poor's. No banker has been announced. Jones Day would serve as bond counsel.
Rush will use about $240 million in proceeds from its deal to finance various projects at its Rush University Medical Center in Chicago and Copley Memorial Hospital in Aurora. Another $97 million would refinance debt from a 2006 issue, $28 million would fund a debt-service reserve and refinance a line of credit, and $4 million would finance the cost of terminating a swap.
Rush is engaged in a major capital redevelopment program begun in fiscal 2007 and continuing through fiscal 2015 under which it will replace its existing main campus that is more than 100 years old. The four-phase plan totals $944 million and relies on the issuance of about $360 million in debt.
The first phase to be completed next year includes a new parking structure, power plant, orthopedics ambulatory building and loading dock. The second phase to be completed in 2012 includes a new east tower and emergency room. The Rush-Copley facility has $200 million of projects slated between fiscal 2008 and fiscal 2014 that include a new atrium, expansion of its surgical unit, parking, and additional intensive care space.
The bulk of the sale is expected to be structured as fixed-rate with a small piece of variable-rate debt. Rush currently carries ratings in the low, single-A category from all three rating agencies. Morgan Stanley is the underwriter. Chapman and Cutler LLP is bond counsel.
Joliet-based Silver Cross would use most of its proceeds from an expected fall sale to finance a 289-bed replacement hospital in nearby New Lenox about three miles away. The hospital enjoys a 31.6% leading market share in its service area in Will County, southwest of Chicago. Inpatient admissions have grown 46% since 2001 and surgeries by 32%.
"The county has experienced explosive growth over the past 15 years and projections suggest that strong growth will continue for the next 25 years," according to IFA documents.
The hospital is planning on a fixed-rate issue. Lehman Brothers and Goldman, Sachs & Co. are the underwriters and Jones Day is bond counsel. Silver Cross is currently rated A by Fitch and Standard & Poor's, but anticipates a downgrade due to the additional debt. Fitch in June placed the credit on negative watch.
While Standard & Poor's left a stable outlook on the credit earlier this summer ahead of a refunding, analyst Antoinette Maxwell said at the time: "Standard & Poor's would view a bond issue of this size [to fund new hospital] to be consequential, resulting in a lower rating."