Toledo’s Promedica Selling $145M Amid FTC Lawsuit

CHICAGO — Promedica Health System will hold a retail order period Wednesday followed by institutional pricing Thursday for $145 million of refunding bonds.

The transaction comes after the Federal Trade Commission sued the Toledo, Ohio-based system in January, saying its recent acquisition of a nearby hospital violated antitrust rules.

Promedica said in preliminary bond documents that it expects a ruling on the case by early December and that it will appeal if the judge rules in favor of the FTC.

An appeal could extend the case for another 18 months or longer.

Barclays Capital is the senior manager on the deal and Wells Fargo Securities is the co-senior manager. Squire, Sanders & Dempsey LLP is bond counsel and Kaufman, Hall & Associates Inc. is financial advisor.

The $145 million issue includes two series. Lucas County, Ohio, will act as conduit for $136.3 million and the Lenawee County, Mich., Hospital Finance Authority will be conduit for $8.9 million.

The nonprofit Promedica is northwest Ohio’s leading health care provider.

It acquired financially struggling St. Luke’s Hospital, located in Lucas County, on August 31, 2010.

The deal boosted to four the number of acute-care hospitals Promedica now operates in the county. The system operates seven additional hospitals throughout the region. Promedica originally planned to sell bonds in January, but the sale was postponed in the wake of the FTC’s January complaints, which charged that Promedica’s acquisition of St. Luke’s is anti-competitive and could significantly harm patients, employees, and local employers by allowing the provider to raise prices.

At a subsequent hearing, the two parties negotiated an agreement whereby the FTC would drop a separate complaint requesting a temporary restraining order and Promedica would agree to stop taking any steps toward integrating St. Luke’s until a decision is made in U.S. District court on granting a preliminary injunction.

The preliminary injunction would prevent Promedica from taking over St. Luke’s and would appoint an independent monitor to review compliance.

“Final resolution of this matter may not occur for several years,” Promedica warned in preliminary bond documents. “Management believes that the operations of the system and the obligated group will not be adversely affected during the period that Promedica opposes the actions being taken by the FTC.”

Ahead of this week’s sale, Moody’s Investors Service affirmed its Aa3 rating and stable outlook on the system.

Standard & Poor’s rates it AA-minus with a positive outlook.

Analysts from both agencies generally consider the St. Luke’s acquisition a strength, saying it will enhance the system over the long term.

Standard & Poor’s revised its outlook to positive last year in part because of the consolidation, and in a recent report noted that Promedica’s financial position has remained stable since then and it has been able to stem St. Luke’s losses since taking over management. An upgrade could be possible if the system maintains its current liquidity and continues to improve St. Luke’s performance, Standard & Poor’s said.

Analysts added that “some resolution around the FTC’s complaint regarding the joinder of St. Luke’s would be required” before the system could win an upgrade.

Despite the FTC’s complaint that Promedica has an unfair advantage over competitors, Moody’s said that one of the system’s chief challenges is the presence of a sizable competitor — Mercy Health Partners, part of the Catholic Healthcare Partners.

Other strengths include strong liquidity, with 314 days’ cash on hand, and a moderate debt burden, with $480 million of outstanding bonds.

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Healthcare industry Ohio
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