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Small Ohio Hospital Deal Sees Strong Investor Interest

CHICAGO — Investors gobbled up $54 million of low-investment grade health care paper sold Wednesday by a hospital in Wood County, Ohio, oversubscribing the deal by more than four times, according to the underwriters.

It was Wood County Hospital’s first borrowing since 2008 and its first-ever rated deal. Moody’s Investors Service gave it an initial rating of Baa2 with a stable outlook. The borrowing includes all of the hospital’s debt.

The finance team had considered privately placing the debt – the bulk of which refunded variable-rate bonds – but opted for the municipal market to take advantage of historically low rates.

“We’re still doing a lot of direct placements with banks, but as the municipal market has really become attractive in last nine months, that marketplace has opened up a lot of doors for our clients to access fixed costs of capital without using banks for credit enhancement,” Kass Matt, senior vice president and regional manager based at Columbus-based investment firm Lancaster Pollard, the underwriter on the deal. “What you’ve got here is tremendous appetite for health-care credits, especially when you get the investment-grade rating.”

The deal featured four maturities. Bonds with a 2027 maturity and 5% coupon yielded 3.97%. Bonds with a 2032 maturity and 5% coupon yielded 4.12%. Bonds with a 2037 maturity and 5% yielded 4.26%, and bonds with a 2042 maturity and 5% yielded 4.35%. All-in interest costs totaled 4.64%.

Wood County Hospital is a one-hospital system located in Bowling Green, home to Bowling Green State University, half an hour from downtown Toledo. The borrowing includes roughly $8.5 million of new-money debt that will be used to build a new student health center on the campus of Bowling Green State University and finance renovations at a cancer center.

The bulk of the proceeds will be used to refund nearly $43 million of variable-rate demand bonds originally issued in 2008 that was supported by a five-year letter of credit from JP Morgan Chase. About $29 million of the 2008 bonds were hedged with a 10-year interest-rate swap.

With another five years left on the swap, the team decided to terminate it at a cost of $3.8 million.

“It was a very effective swap, but the opportunity for fixed-rate debt for the next 30 years was very attractive,” Matt said. “This gave us the chance to really reexamine the debt structure for a one-hospital system in northern Ohio and eliminate its risk,” he said.

Proceeds also funded a debt-service reserve fund.

Peck, Shaffer & Williams LLP was bond counsel. 

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