LOS ANGELES — San Francisco-based Dignity Health plans to issue $1.4 billion of debt in first two weeks of October through private placements and open market deals.
The nonprofit hospital chain, formerly known as Catholic Healthcare West, received approval Sept. 25 from the California Health Facilities Financing Authority's board to refund $330 million in a 2014 Series B tax-exempt private placement of revenue bonds, using CHFFA as a conduit issuer.
The bonds will be placed with Deutsche Bank AG on Oct. 15 with BMO Harris Bank as placement agent, according to the CHFFA staff report.
On Oct. 7, Dignity plans to price between $718 million and $888 million of fixed-rate taxable bonds, according to a Sept. 25 Fitch Ratings report.
Dignity also has two separate taxable direct placement loans for $100 million with five-year terms planned with CitiBank and Fifth Third Bank.
The 2014A series bonds, in conjunction with the direct bank loans, will be used to provide new money to fund capital investments of $430 million to $600 million, refund outstanding debt and draws on working capital lines of $773 million, according to Fitch.
Dignity's total revenue base was $10.4 billion in fiscal 2014, Fitch said. The system has 39 hospitals, of which 33 are located in California, four in Arizona and three in Nevada.
The bonds are secured by a gross pledge of the obligated group, which accounted for 97% of total revenue and 99% of total unrestricted net assets of the consolidated entity as of June 30, 2014.
The 2014A series bonds received A, A, and A3 ratings from Standard & Poor's, Fitch, and Moody's Investors Service respectively, according to the preliminary offering statement. Fitch didn't rate the bank loans.
S&P assigned A ratings to the bank loan through CHFFA and the one being placed with Citibank A, but didn't rate the deal involving Fifth Third Bank. Moody's has not released a report indicating whether it is rating the bank loans.
The long-term ratings reflect S&P's assessment of Dignity Health's "weak operating performance," analysts said in the report.
Operating results have been impacted by the continued effects of volume softness, an unfavorable reimbursement environment, and investments related to evolving the organization within the changing healthcare environment, according to S&P.
"As anticipated at the time of our previous analysis, published April 4, 2014, Dignity Health's operating performance remained negative through the end of fiscal 2014, but strong non-operating income led to steady bottom line profitability," said S&P analyst Kenneth Gacka.
The operating losses resulted from the fact that Dignity Health was not able to record the net benefit from California's provider fee program during the second half of fiscal 2014. Revenues from that program will not hit the balance sheet until the extension to 2016 of that program is approved by the Centers for Medicare and Medicaid Services, which is expected to occur in 2015 and will likely result in a favorable spike in revenues for Dignity Health in 2015, according to S&P.
Total pro forma outstanding debt is $5.23 billion and is 80% fixed rate and 20% floating rate including its swaps, according to Fitch. Dignity has $776.4 million of variable rate demand bonds that are supported by letters of credit that expire between October 2015 and June 2017. Roughly $1.8 billion of that debt was issued through CHFFA.
