Detroit-Area Hospital Selling $108M for New Tower

CHICAGO -- Suburban Detroit’s Crittenton Hospital Medical Center Tuesday will price $108 million of hospital revenue bonds to raise money for a new patient tower and shift a chunk of its variable-rate demand bonds into a fixed-rate mode.

Crittenton is a stand-alone provider that operates a 243-bed acute-care hospital in Rochester, a wealthy city about 30 miles from Detroit that is home to Chrysler’s headquarters. Crittenton is Rochester’s only hospital, though it operates in the larger, highly competitive health care landscape of regional Detroit.

Moody’s Investors Service hit Crittenton with a downgrade last August, cutting its rating to Baa2 from Baa1. The downgrade marked the third time in four years that Moody’s has cut its rating on Crittenton. Moody’s now maintains a stable outlook on the credit.

Standard & Poor’s rates the bonds A-minus and has the rating on a negative outlook.

Crittenton enjoys a stable market share of more than 40% and has seen some recent improvements, including an improved operating cash flow and a new senior management team, according to credit analysts. In another positive move for the credit, next week’s deal will reduce market-exposure risk by reducing the amount of variable-rate bonds that makes up its debt portfolio to 30% from 54%.

But the new-money piece of the deal, around $50 million, coupled with a high unfunded pension liability, could strain the bottom line as the provider struggles to recover from three straight years of weak financial performances.

JP Morgan is the underwriter. Miller, Canfield, Paddock and Stone PLC is bond counsel. The Michigan Finance Authority is acting as conduit issuer for the hospital.

The deal includes a mix of serial and term bonds with a final maturity of 2039.

Proceeds will be used to refund 2002 and 2003 variable-rate demand bonds into fixed-rate debt and fund a debt service reserve fund. The new-money piece of the deal totals $45 million and will be used to build a new six-story patient tower that will feature 42 new beds. The project totals $65 million, and the hospital expects to finance the remainder of it with cash.

“The stable outlook reflects our belief that with the changes in the senior management team, the initiatives implemented and the level of performance through the first half of fiscal 2012, Crittenton will meet performance expectations for this year,” Moody’s said in its ratings report on the transaction. “We believe the new debt with the current financing is manageable at this time given the more stable performance; however failure to meet performance expectations or addition of further new debt could result in negating rating pressure.”

A piece of Crittenton’s 2002 bonds with a 5.62% coupon and 2027 maturity was yielding 4.5% in recent trading, according to the Municipal Securities Rulemaking Board web site.

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Healthcare industry Michigan
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