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Houston’s St. Luke’s Episcopal Health System to Refund $385M

DALLAS — Houston-based St. Luke’s Episcopal Health System is preparing a $385 million revenue bond refunding deal through the Harris County Cultural Education Facilities Finance Corp.

The bonds, the sale date for which has not been announced, are designed to refund all of the health care system’s variable-rate debt with fixed-rate debt and to establish a debt reserve fund.

So far, only Standard & Poor’s has rated the bonds, assigning a AA-minus with a stable outlook.

“The AA-minus rating reflects St. Luke’s strong, though weakened, balance sheet and improved operating performance, which has been a long-standing concern for us,” said credit analyst Martin Arrick.

Arrick noted that St. Luke’s is “only generating adequate cash flow and debt-service coverage due to weak investment market returns.”

St. Luke’s is expanding into rapidly growing suburban markets, including two joint-venture inpatient facilities in the past year. The system is also developing minor emergency centers and affiliate programs.

Last month, SLEHS opened St. Luke’s Lakeside Hospital in The Woodlands north of Houston. The 77,830 square-foot, 30-bed surgical hospital features specialists in sports medicine, orthopedic-spine, and noninvasive cardiology care.

The health care system’s suburban focus played a part in its decision to end its affiliation with Baylor College of Medicine. Until the affiliation ended in 2008, St. Luke’s served as the teaching hospital for Baylor.

Rejected by St. Luke’s Hospital and its former partner Methodist Hospital, Baylor decided to build its own $568 million teaching hospital, breaking ground in May on the 256-bed first phase expected to open next year.

Baylor’s new hospital will have advanced medical and surgical care, outpatient clinics, 300 faculty offices, and a 19,000-square-foot research area. Located on a 35-acre campus on the grounds of Houston’s Texas Medical Center, Baylor’s new hospital will eventually have 600 licensed beds and 2.6 million square feet of space.

The upcoming St. Luke’s bonds will refund a 2001B issue that financed expansion of the St. Luke’s Medical Tower at the Texas Medical Center along with additions to satellite facilities. The Texas Medical Center is the largest medical hub in the world, with 47 nonprofit medicine-related institutions, including 13 hospitals.

Earlier this month Dr. Margaret M. Van Bree was named chief executive officer for St. Luke’s Hospital. Van Bree had been senior vice president and chief operating officer at the University of Wisconsin Hospital and Clinics in Madison since 2007.

She also held the same or similar roles since 1999 at the University of Virginia Health System and Fairview-University Medical Center in Minneapolis.

Founded in 1954 by the Episcopal Diocese of Texas, St. Luke’s is still governed by the church and ranks as one of the top hospitals in the country for heart treatments.

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