The Maine Health and Higher Education Facilities Authority plans to sell $290 million of Series 2011 revenue bonds Tuesday to benefit a construction spree by the MaineGeneral Medical Center.
The tax-exempt bonds will mature from 2012 to 2041. No insurance or swaps are involved.
MaineGeneral now has one hospital in downtown Augusta and two in Waterville. It plans to close the larger one in Augusta and one of the two in Waterville and build a 149-bed general care facility in Sidney, between Augusta and Waterville. It will be near the Harold Alfond Center for Cancer Care and Interstate 95. The opening is scheduled for winter 2014.
The overall cost of the hospital project, including financing, is estimated at $412 million and includes $10 million in renovations at MaineGeneral’s Thayer campus in Waterville. The hospital received its certificate-of-need license last year.
The hospital’s board of directors approved the bond sale, with Maine Treasurer Bruce Poliquin casting the sole dissenting vote. Earlier in the year, Poliquin said he favors voter approval on all bonds issued by state-created agencies.
Moody’s Investors Service and Fitch Ratings initially rated the bonds triple-B.
Moody’s cited MaineGeneral’s 63% market share in the Kennebec Valley region, strong support from the Harold Alfond Foundation, and improved operating performance as strengths. Operating income rose to $9.4 million, a 2.3% margin, up from $1.6 million with a 0.4% margin the previous year, Moody’s said..
The foundation, while not obligated on the bonds, has provided significant support to MaineGeneral, including $7 million for the cancer center, $35 million in grants or matching gifts for the current project, and collateral to back a surety bond from Berkshire Hathaway Inc. as security for the debt-service reserve fund.
The late Harold Alfond, a noted Maine philanthropist, founded Dexter Shoe Co., and sold it to Warren Buffett’s Berkshire Hathaway in 1993.
Moody’s also warned that the materially large increase in debt — more than quadruple its current debt — will result in stressed ratios. Such factors as volume declines, replacement hospital-cost overruns, or operational disruptions could trigger a downgrade, Moody’s warned.
Fitch expects MaineGeneral “to generate stable operating performance through the construction period, including steady operating profitability and maintenance of its market position.”
It added, however, that “as with any construction project, there are risks associated with delays and cost overruns, which could negatively impact profitability through the construction and occupancy period.”
Bank of America Merrill Lynch is senior manager for the bond sale. Raymond James & Associates Inc. is senior co-manager. Co-managers are Morgan Keegan & Co., Morgan Stanley and Wells Fargo.
Hawkins Delafield & Wood LLP of New York is bond counsel. Kozak & Gayer PA of Augusta is counsel for MaineGeneral and Edwards Angell Palmer & Dodge LLP is representing the underwriters. Verrill Dana LLP of Portland, Maine, is representing the authority.
PricewaterhouseCoopers LLP is the auditing firm. Causey Demgen & Moore Inc. provided a feasibility study.
