Low Rates Boost Premier Health

DALLAS -- Southwest Ohio's largest healthcare provider capitalized on the low interest rate environment last week to save on the debt of four hospitals it now operates as one obligated group.

Under a restated master trust indenture, Premier Health Partners consolidated $970 million of outstanding debt belonging to Miami Valley Hospital, Atrium Medical Center, and Upper Valley Medical Center. The hospitals all previously operated under Premier Health but existed as individual obligated groups.

Premier Health priced $300 million of new taxable debt and $266 million of refunded and refinanced debt Wednesday.

The consolidation also includes approximately $400 million of existing debt of the obligated group members that was not refinanced.

"Premier Health Partners created an obligated group in order to reduce financing costs and create common bank credit covenants," said a spokesperson for the health group.

Premier Health said it expects to achieve interest expense savings in excess of $1.8 million annually by refunding and refinancing the existing debt issues and achieved in excess of $83 million of net present value cash flow savings from the new taxable issue by funding the Premier Pension Plan.

The restated obligated group accounts for approximately 64% of Premier Health's consolidated operating revenue and 68% of consolidated total assets.

"Premier is going to bring all of its debt into one big borrowing group and consolidate with more capital structure and financial reporting and operating efficiencies that come with being one collective borrowing group rather than being a conglomerate of legacy organizations," said Beth Wexlar, a senior credit officer at Moody's Investors Service.

The Series 2016A and 2016G bonds were issued as tax-exempt fixed-rate bonds and taxable fixed-rate bonds, respectively. The bonds are rated A-plus and A2 by Fitch Ratings and Moody's, respectively.

Bond proceeds from the Series 2016A will refund Atrium Health System's series 2010A bonds. Series 2016G bond proceeds will fund Premier Health's pension plan and refinance $91 million of Good Samaritan Hospital notes payable to Catholic Health Initiatives. Good Samaritan Hospital is not part of Premier Health's restated Obligated Group because it is a member of Catholic Health Initiative's Obligated Group.

Barclays was the lead manager, Kaufman Hall the municipal advisor and Chapman and Cutler LLP the bond counsel.

The series 2016C-F bonds were issued to refund Miami Valley Hospital series 2008B/C and 2011B/C bonds and UVMC's series 2006 bonds. The bonds were issued as daily tax-exempt variable rate demand bonds backed by letters of credit through the Montgomery County, Ohio. Fitch assigned AA ratings to the bonds.

Approximately $400 million of outstanding debt tied to Miami Valley Hospital, Premier Health's flagship property that was not refinanced has been downgraded to bring the debt on parity with Premier Health.

Fitch downgraded the Miami Valley Hospital bonds to A-plus from AA-minus and Moody's downgraded them to A2 from Aa3, respectively. The bonds are consolidated under the restated indenture and secured by the same revenue pledge but will not be refunded.

Premier Health was originally formed through a joint operating agreement between MedAmerica and Catholic Health Initiative in 1995. It has a history of profitability and double-digit operating cash flow margins including $1.2 billion of unrestricted cash and investments as of June 30.

The health system holds a leading 48.6% market share and is the largest healthcare provider in Southwest Ohio. Kettering Health Network, Premier's chief competitor in the local marketplace, holds a competitive 37.4% market share.

Premier Health is amid the launch of its health insurance plan for the state marketplace which has incurred start-up costs. The plan covers 37,000 people. Operating margins "will remain suppressed in the near term as the System continues to ramp up its relatively new health plan," said Moody's.

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