CHICAGO – The Illinois Finance Authority signed off on $800 million of borrowing plans by several Illinois-based not-for-profit health systems and a Chicago art museum, which will join the parade of issuers hitting the market this quarter with new-money and refunding paper.
The IFA signed off at its October meeting on Carle Foundation's plans to sell up to $300 million of debt which is set to price as soon as next week.
About $240 million represents new money to finance construction of a three-story service building, a single-story ambulatory surgery center, and an addition to an ambulatory clinic, in addition to renovations on the acute care hospital on Carle's main campus.
"Favorably, the majority of planned projects are expected to be revenue-enhancing and no additional debt is currently planned, apart from the series 2016 borrowing," Fitch Ratings said in its review of the sale.
The rating agency affirmed its AA-minus rating and stable outlook. The projects are part of the system's $200 million, five-year capital improvement plan.
The Urbana-based system serves east-central Illinois and west-central Indiana. It also plans to refund debt from a 2009 issue. About $50 million of the deal is taxable and will be sold using a floating-rate structure.
Debt payments are secured by a security interest in the obligated group's gross receipts. There is no mortgage or property pledge or debt service reserve fund.
Barclays is the senior manager and Goldman Sachs is a co-manager. Ponder & Co. is advising Carle and Chapman and Cutler LLP is bond counsel.
Carle Foundation includes a 389 staffed-bed Carle Foundation Hospital and other subsidiaries, including the Carle Physician Group, with more than 450 physicians practicing in 50 specialties at 19 different sites in 14 area communities, and it operates a health plan.
Fitch Ratings said it views Carle's model, which includes a tertiary hospital, a large base of employed physicians and a health plan, as a credit strength. Delays in Illinois state reimbursements owed to its health plan pressure the system, but otherwise solid operating results help offset rating agency concerns.
"Despite recent softening in operating profitability due to losses within the health plan, unrestricted liquidity at June 30th remains solid at approximately $1.2 billion equating to 159% of pro forma debt," Fitch wrote.
Carle's leading market position in its primary service area has grown annually since 2002 to 46.8% in 2016.
The overall system generated $2.5 billion of operating revenues in fiscal 2016. At June 30, 2016, Carle had unrestricted cash and investments of approximately $1.2 billion up from up from just under $1.1 billion in 2013.
Consolidated operating margins in both fiscal 2015 and the six-month interim period of 2016 were weaker than the 5% operating margin Carle posted in fiscal 2014. Days cash on hand slipped to 173.4 for the six months ended June 30, 2016 from 194.8 in fiscal 2015 and 231.3 in fiscal 2014.
The biggest source of weakness in the ratios was delayed Medicaid payments from Illinois, which is struggling with cash flow due to its prolonged budget impasse. Approximately 47% of Carle's health plan's premium revenues come from state insurance contracts. To deal with the impact of the delays and shore up operating results, Carle plans to exit its managed Medicaid business by January.
"The rating affirmation reflects Carle FD's strong enterprise profile characterized by a strong market and competitive position," said S&P analyst Martin Arrick in a report affirming the system's A-plus rating and stable outlook.
After the sale, Carle will have $715 million of debt, with about 61% in a fixed-rate structure and 39% variable-rate. Carle has four swaps in place - two fixed payor swaps and two basis swaps -- for a total notional value of $192 million with a negative valuation of $22.1 million.
The IFA board also approved Edward-Elmhurst Healthcare's plans to sell up to $350 million of debt in a mix of publicly offered, fixed-rate bonds and direct purchases. Only about $17 million represents new money.
The deal advance refunds debt originally issued by Elmhurst Memorial Healthcare and Edward Hospital and Health System before the two systems joined forces in 2013. A current refunding of Edward's 2008 debt would be directly purchased by JPMorgan and a current refunding of its 2009 bonds would be directly purchased by Bank of America Merrill Lynch.
The portion not directly placed would be publicly offered with BAML as lead underwriter. Edward carries current ratings of A from S&P with a stable outlook and A-plus with a stable outlook from Fitch. Combined the two have more than $700 million of debt.
Elmhurst is rated at Baa2 by Moody's and BBB by Fitch, which revised its outlook to positive last year citing Elmhurst's growing market presence and operational benefits from the consolidation with Edward Healthcare Services.
The bonds are backed by a pledge of unrestricted receivables. Edward Hospital is in Naperville, far west of Chicago, while Elmhurst is located in the near-west Chicago suburb of Elmhurst. The system also operates Linden Oaks Hospital, a 108-bed facility in Naperville that treats mental illness, substance abuse, and eating disorders.
Chapman and Cutler LLP is bond counsel and Kaufman Hall & Associates is advising the system.
The board also approved Chicago-based Swedish Covenant Hospital's up to $120 million sale, most of which will refund existing debt with about $10 million of new money planned.
The deal will advance refund a 2010 issue and a 2010 loan from GE.
The 306-bed Swedish Covenant Hospital on Chicago's northwest side was founded in 1886. With the upcoming sale, the mortgage pledged to the 2010 bonds is expected to be released and 2016 bondholders will have a security interest in the obligated group's unrestricted receivables.
The system carries existing ratings of BBB-plus from Fitch and S&P and expects updated ratings of between BBB to BBB-plus, according to IFA documents.
BAML is senior manager and Ziegler Securities is co-manager. Chapman and Cutler is bond counsel and Ponder is financial advisor.
The Museum of Contemporary Art in downtown Chicago also received approval for a $30 million refunding of debt from a 1994 issue. Banc of America Public Capital Corp. will purchase directly the bonds, which are a general unsecured obligation of the museum. The bonds will pay a variable rate and synthetically fix the bonds at a rate of between of 2% and 4% for an initial term of 10 years.
"The savings attained from issuing the proposed Series 2016 bond versus undertaking a conventional debt refinancing will reduce monthly payments that will help the museum keep its fixed charges (including debt service payments) as low as possible," IFA documents said. The savings will also free up cash for other projects.
The museum has paid down $20 million from the original $50 million sale that financed an expansion. The museum was established in 1967 and is one of the nation's largest multidisciplinary museums devoted to the art of present time. Chapman is bond counsel.
