Illinois Agency Clears $1.5B for Health Care, Higher Ed

CHICAGO -The Illinois Finance Authority last week advanced borrowing plans totaling nearly $1.5 billion for health care, higher education institutions, and other nonprofits, including a $375 million sale planned by Rush University Medical Center and $500 million for the University of Chicago.

Rush - located for more than a century on Chicago's near west side - received final approval to proceed with its deal that includes $230 million to finance the second phase of a 12-year, $900 million reconstruction and renovation of its campus begun in 2004.

The second phase calls for construction of a new hospital tower and emergency room to be completed in 2012. It follows the first phase of the project to be completed by next year that includes construction of a new ambulatory building, parking facilities, and power facilities. The third and fourth phases would pay for other renovation and demolition projects.

Rush officials opted for the massive reconstruction program over a simpler renovation plan that would have cost about $100 million.

"We were not really going to be able to provide the level of care that was important to us in 1880s buildings even after investing $100 million," said chief financial officer Catherine Jacobson.

Another $96 million will go to retire a line of credit the hospital system tapped to redeem a 2006 variable-rate issue that shot up in price and suffered failed remarketings after its insurer MBIA Insurance Corp. was downgraded.

The remainder would finance a debt service reserve and cover the costs of terminating a swap tied to the 2006 issue. The termination fee is estimated at $4 million, but has varied significantly based on market fluctuations.

Some new-money proceeds also will finance projects at the system's Rush-Copley Memorial Hospital in Aurora, far west of Chicago. That 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.

A total of $350 million of debt will finance the capital programs at both facilities with the remainder being paid for with private funding, government aid and philanthropic donations. The bulk of the sale is being structured as fixed rate with a small piece of about $50 million of variable-rate debt. Rush currently carries ratings in the low, single-A category from all three rating agencies.

Morgan Stanley is the senior manager and Loop Capital Markets LLC and Cabrera Capital Markets LLC are co-managers. Chapman and Cutler LLP is bond counsel. Northern Trust Bank will provide a letter of credit on the floating-rate tranche.

"We will be ready to go at the end of November so we will be assessing the market," closer to pricing, Jacobson said of the potential timing of the sale, especially given the market turmoil of recent weeks.

NorthShore University HealthSystem, formerly known as Evanston Northwestern Healthcare, received preliminary approval for its sale of about $50 million to acquire Rush North Shore Medical Center from the Rush obligated group. Proceeds will go to pay off the facility's debt and for other capital expenses. The system has not settled on a structure.

Regulatory approval for the acquisition is still needed. The NorthShore system carries strong ratings of Aa2 from Moody's Investors Service and AA-plus from Standard & Poor's. Morgan Stanley is the senior underwriter.

The IFA gave preliminary approval to the University of Chicago's plans for a new money sale of up to $500 million to finance various projects on its Hyde Park campus and at other buildings near the campus over the next several years. The projects include a new residence hall and dining facility, an expanded utility plant, chemistry lab renovations, a library addition and renovations, construction of a center for biomedical discovery and other renovations.

The university is considering a mixed fixed- and floating-rate structure. The prestigious school carries underlying ratings of AA from Standard & Poor's, AA-plus from Fitch Ratings and Aa1 from Moody's. The school also carries its own short-term ratings. The university expects its fixed-rate bonds to sell uninsured, and the floating-rate will carry a liquidity facility.

The university is using Prager Sealy & Co. as financial adviser and Chapman as bond counsel. The university has selected Loop as a co-manager but has not settled on a senior manager yet, said chief financial officer Nimalan Chinniah.

IFA board members, who are pushing for more diversity in the underwriting teams selected by borrowers, urged the school to use another minority-or women-owned firm in addition to Loop, which is a certified black and woman-owned firm.

Joliet-based Silver Cross Hospital received final approval for its sale of up to $275 million. It will use most of its proceeds 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. The hospital is planning on a fixed-rate issue. Barclays Capital 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.

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