IFA Advances Over $1 Billion of Health Debt

CHICAGO — The Illinois Finance Authority advanced plans for more than $1.3 billion in financings yesterday, including more than $1 billion for health care deals for Advocate Health System, Sherman Health System, and two continuing care community. The IFA board gave final approval to Oak Brook, Ill.-based Advocate Health Care Network’s sale of up to $520 million of debt scheduled for early next month. The deal includes $200 million of new-money bonds for projects at its seven acute-care hospitals and more than $300 million of refunding bonds. The refunding piece will restructure existing debt pushing out bonds now set to mature in nine years by another decade to 19 years to lower the system’s annual debt service costs. “This will allow Advocate to lower our debt service payments and in turn have greater resources” to spend on care, said Advocate chief financial officer Dominic Nakis. The new-money piece will finance projects that include renovations to Illinois Masonic Medical Center’s emergency department, Trinity Hospital’s cardiac catheterization lab and Lutheran General Hospital’s bed tower. The system carries ratings a AA-minus from Fitch Ratings, a Aa3 from Moody’s Investors Service, and a AA from Standard & Poor’s. Advocate expects to issue the debt using an auction-rate structure with triple-A insurance coverage from Ambac Assurance Corp. Some portion will be swapped to a synthetic fixed rate with the amount depending on market conditions at the time the swap contract is executed. Citi is serving as the underwriter and Chapman and Cutler LLP is bond counsel. Sherman Health System received final approval to sell up to $325 million of debt that includes $130 million to refund bonds sold in 1997 and $158 million of new money to fund construction of a 255-bed replacement hospital in Elgin about four miles from the current facility. A portion of the deal is expected to price next month. The hospital initially planned an interim financing last year, but litigation filed by Provena Health contesting the validity of its certificate of need award permitting construction from the Illinois Health Facilities Planning Board delayed that financing. A Cook County Circuit Court judge rejected the challenge and affirmed the certificate of need in June. Provena filed a notice of appeal in July. “In the case that the litigation against it is successful, Sherman would most likely use unspent bond proceeds, cash reserves, and-or a taxable external financing to take out the debt,” according to IFA documents. The deal is expected to include a mix of uninsured fixed-rate and fixed-rate put bonds with a final maturity of 2047. The system carries a Baa1 from Moody’s and an A-plus from Standard & Poor’s. Morgan Stanley is the underwriter, Kaufman, Hall & Associates Inc. is financial adviser, and Jones Day is bond counsel. The board gave its preliminary approval to a financing of up to $175 million for the rebuilding of the Admiral at the Lake, a continuing-care retirement community on Chicago’s north side along Lake Michigan. The facility — an evolution of the city’s first home for the elderly which was founded in 1858 — had struggled in recent years to attract seniors because of the smaller size of its apartments and a lack of amenities due to the building’s age. The facility’s board in 2004 adopted a redevelopment plan and the current tenants were relocated earlier this year. Demolition is expected to be completed by the end of the year. Construction of the new facility is expected to be completed in February 2010. The deal will include a mix of unrated, fixed-rate bonds and floating-rate bonds that will carry a letter of credit. William Blair & Co. is the underwriter. The board also gave preliminary approval to Fairview Obligated Group’s sale of up to $60 million to advance refund $45 million of debt sold in 2004 and for new-money projects at its Downers Grove campus, which houses a continuing-care community. The deal will include a mix of unrated fixed-rate bonds and floating-rate debt that will carry a letter of credit from LaSalle Bank. Ziegler Capital Markets Group is the underwriter and Jones Day is bond counsel. The board also gave preliminary approval to the sale of up to $50 million of tax-exempt, solid waste disposal revenue bonds for Ethanex Energy North America Inc. to finance a $377 million, 132 million gallon capacity ethanol plant. The IFA is contributing $25 million of its allocation of the state’s private-activity volume cap to allow for the tax exemption so the borrower needs to acquire an additional $25 million from another source. The deal adds to a long slate of others the IFA has approved over the last year that require more than $1 billion in private-activity volume cap. IFA officials said they have a preliminary agreement with state officials ensuring that the agency would receive sufficient volume cap for any deals that price this year. The state’s share of volume cap was set at about $1.1 billion this year but it is doled out to local communities in addition to state agencies.