CHICAGO — The Indianapolis Local Public Improvement Bond Bank will enter the market today with about $200 million of bonds, in the first of two borrowings that will finance construction of a new, $754 million safety-net hospital for Marion County.
The bond bank will follow today’s issue with $447 million of lease revenue bonds on Feb. 23.
The two sales are expected to complete most of the financing needed for the new Wishard Hospital, the county’s main public, acute-care hospital.
The project is the culmination of years of planning by officials from both the hospital and Indianapolis to replace the existing Wishard, which includes some buildings that are nearly 100 years old.
The senior underwriter on the deal, Citi, was selected four years ago by bond bank officials as they began to prepare for the borrowing.
The hospital, which is expected to contribute roughly $150 million in cash to the overall financing package, has spent the last several years building its reserves to supply that money.
Hospital officials also spent months holding community meetings asking residents to support a $703 million bond proposal, which appeared on last November’s ballot.
Voters approved the question by a margin of 85%, ensuring that all the bonds issued for the project will feature the full faith, credit, and taxing power of the Marion County Health and Hospital Corp., the county’s health care division, which has taxing power over an area that includes Indianapolis.
While all the debt is supported by an unlimited GO pledge, the upcoming $447 million is being issued by the bond bank on behalf of the Indianapolis-Marion County Building Authority, which is acting as a conduit for the Health and Hospital Corp.
Those bonds are payable from fixed rental payments made by the HHC to the authority.
Today’s bonds are tentatively scheduled to be divided into two series, $40 million of traditional, tax-exempt fixed-rate serial bonds that will mature from 2013 through 2022, and $165.2 million of taxable, direct-payment Build America Bonds.
Of the $165 million of BABs, $55.2 million are expected to be term bonds due in 2030 and $110 million will be term bonds due in 2040.
The structure of the upcoming lease-backed bonds is expected to feature roughly $148 million of tax-exempt bonds and just under $300 million of taxable BABs, said bond bank executive director Kevin Taylor.
“We’re taking advantage of the strong demand for BABs, and term bonds carry the stronger interest from investors,” Taylor said, adding that the bank also expects to see strong retail interest in the bonds.
The project could include a small final borrowing — the HHC has about $50 million of debt left to issue from the voter approval — if construction costs are higher than expected, Taylor said.
The selection of the finance team followed the overall project’s goal of including minority- and women-owned firms, according to Taylor.
“We wanted every step in this whole project, from the construction to the planning, to involve minority firms and women-owned businesses, and that extends to the underwriting as well,” he said.
Citi will act as senior manager on both deals. On today’s deal, JPMorgan is co-senior manager.
The underwriting team also includes Andes Capital Group LLC, Blaylock Robert Van LLC, City Securities Corp., KeyBanc Capital Markets Inc., Mesirow Financial, M.R. Beal & Co., and Siebert Brandford Shank & Co.
The bank has used all the underwriters before except Andes Capital, a minority-owned firm based in Chicago, Taylor said.
Barnes & Thornburg LLP and Graham & Associates PC are co-bond counsel. Crowe Horwath LLP is financial adviser.
Ahead of the deal, Moody’s Investors Service assigned a Aa2 rating to all the debt. Fitch Ratings rates today’s $205 million of bonds AA-plus and the upcoming $447 million of bonds AA.
Both agencies cited the unlimited property tax pledge backing the debt and the risks tied to Wishard’s role as a public hospital as key drivers of the ratings.
Fitch’s one-notch distinction on the debt comes as debt service on the Building Authority debt is subject to abatement if the facilities are not operational, analysts said.
Unlike many public hospitals across the country, Wishard generally has enjoyed a strong financial position supported by several years’ of operating surpluses despite serving as the county’s main hospital for the indigent.
Up to 40% of its patients are uninsured or use government subsidies, credit analysts said. Despite the high mix of nonpaying patients, the hospital’s general fund — which comes from property- and income-tax support and up to 48% in Medicaid reimbursements — has generated consistent surpluses, analysts noted.
The project includes a land swap between the existing Wishard and Indiana University-Purdue University at Indianapolis, both of which are located on the northwest edge of downtown Indianapolis.
Wishard — which is the teaching hospital for Indiana University School of Medicine — will move its facility to a piece of land owned by the college which is adjacent to the existing Wishard facilities. The college will take over the 17-building complex where Wishard now stands.
The new hospital will feature 12 stories and 315 beds covering roughly 850,000 square feet, with an adjacent six-story, 175,000-square-foot building that will operate as an outpatient facility. Construction will also include a seven-story, 207,000-square-foot office building, a six-story parking garage, and a utility plant.
It is scheduled to open in December 2013.
Indiana University is expected to demolish most of the existing Wishard buildings — which have an average age of 61 years — to make way for an expanded life sciences corridor, officials said.
“When the doors on the new Wishard hospital open, the oldest part of the existing Wishard will be celebrating its centennial,” Taylor said.
