BRADENTON, Fla. - Standard & Poor's lowered its long-term underlying ratings to A-minus from A on bonds issued for Shands Teaching Hospital and Clinics based at the University of Florida.
Shands had $573.4 million of outstanding revenue bonds and notes as of June 30. Most of the bonds were issued by the Alachua County Health Facilities Authority.
The A-minus rating was also assigned to the hospital's upcoming issuance of $250 million in bonds, S&P said in a Sept. 24 report. The 2014 bonds are being issued by the Alachua authority.
"The lower rating reflects Shands' weaker financial profile following the issuance of the $250 million series 2014 bonds, with additional debt of $100 million anticipated in 2016, both in support of a sizeable capital project with an estimated cost of $465 million," said S&P analyst Stephen Infranco.
The $350 million in bond proceeds will fund a portion of the cost to build a new facility with two towers, 216 beds, and 20 operating rooms to house Shands' neuromedicine and cardiovascular services. The new facility will be adjacent to an existing cancer hospital in Gainesville, where the state's flagship university is located.
Remaining funds for the project will come from $115 million in cash, reserves, and philanthropy, according to S&P.
Depending on upcoming market conditions, Shands may upsize the upcoming $250 million deal to include the $100 million planned for issuance in 2016. S&P said its lower rating considers the potential for the higher issuance.
"While we believe Shands has a strong enterprise profile, evidenced by its favorable business position, close relationship with University of Florida, and strong management team, the financial profile is mixed with historically positive operations offset by limited balance sheet strength, particularly pro forma debt-related metrics that are weak for the rating," Infranco said.
S&P said Shands' business position remains sound with a leading market share in a very broad, 22-county primary service area in north-central Florida. Shands is the academic medical center for the University of Florida's College of Medicine.
In fiscal 2014, the health care system reported business volume growth of 5.6% on 40,531 admissions, excluding births.
Shands board of directors approved the tax exempt bond deal Sept. 24, though the pricing date was not immediately available.
Late last year, Shands paid $26.2 million to settle allegations related to billing practices and overpayments made by Medicare and Medicaid for certain services.
The health system said the payment would not have a material impact on its financial position largely because the amount was saved over the five-years that it took to reach a settlement in the federal case.
