CHICAGO - Children's Memorial Hospital's plan to build a $1 billion replacement facility is advancing on two fronts this week, with Chicago City Council zoning approval expected today and the assignment of its first public rating in recent history, a AA-minus from Fitch Ratings.
Founded in 1882, the hospital had long considered plans to either renovate its current facility in the Lincoln Park neighborhood or build a new one to accommodate growing demand for its services and state-of-the-art equipment needs.
The prestigious facility's board voted in 2006 to build a new 288-bed hospital on the downtown campus of Northwestern University's Feinberg School of Medicine and Northwestern Memorial Hospital's new Prentice Women's Hospital in the Streeterville neighborhood.
Children's Memorial is planning a $430 million bond sale this spring through the Illinois Finance Authority to provide the first leg of financing for construction. Goldman, Sachs& Co. and Morgan Stanley are underwriters. Kaufman, Hall & Associates Inc. is financial adviser. Jones Day would serve as bond counsel.
The hospital had not had a public rating on its $187 million of existing debt that sold in 1993, 1999, 2003, and 2004, as it all carried a letter of credit or insurance, but officials decided to seek them as it readied the new issue. Officials could not be reached to say what rating agencies in addition to Fitch were asked to review the credit.
Fitch on Monday assigned a AA-minus underlying credit and stable outlook - a rating supported by Children's position as the leading provider of pediatric services, its close relationship with Feinberg School of Medicine, strong financials, and excellent philanthropic support, analysts wrote. The hospital received contributions and gifts of $166 million last year.
The hospital held unrestricted cash and investments as of Aug. 31, 2007, of $511.4 million, providing a "very strong" 359 days cash on hand and 284% coverage of debt. It had total operating revenues of $569 million in fiscal 2007.
Children's holds a leading 12.1% market share for pediatric services in the Chicago region, nearly double that of its closest competitor, Christ Hospital. Its reputation draws patients, however, from across the country and internationally.
Concerns that offset some of the hospital's strengths include its construction plans and the impact of taking on more than $400 million of new debt on its balance sheet, heavy exposure to Medicaid which accounts for 45.2% of gross revenues, and the interim need to find additional space until the replacement hospital opens.
While the new debt will strain the hospital's profitability in the near term, "the new facility and the move to Streeterville is expected to enhance Children's operations over the long term," analysts wrote. The stable outlook takes into account the upcoming debt issue although Fitch has not formally reviewed and rated the proposed issue.
The project is being financed with the bond proceeds, $346 million of cash, and $248 million of donations, including a $100 million gift announced last year from Chicago philanthropist Ann Lurie.
Children's Memorial is on track to break ground in April and open in 2012, pending remaining regulatory approval, according to spokeswoman Mary Kate Daly.
The City Council is expected at its meeting today to approve zoning changes. The plan had received opposition from some neighborhood groups concerned about increased traffic in an already congested area and worried about the dangers of a rooftop heliport.
The hospital still needs a certificate of need from the Illinois Health Facilities Planning Board. Its application will receive a hearing and vote at the board's next meeting scheduled for Feb. 26 and 27. q
