Portland-based Oregon Health & Science University will price $440 million of tax exempt revenue bonds Thursday to fund an expansion and to refund for savings.
Though the primary purpose of the deal is to help fund a $650 million hospital expansion, the finance team led by JP Morgan and Goldman Sachs and co-managed by Loop Capital adds a couple of interesting wrinkles. The deal involves a 90-day forward refunding that will be done in a private placement and debt that will be offered for tender or exchange.
“The debt offering is fundamentally about borrowing $350 million for the expansion project,” said Lawrence Furnstahl, OHSU’s chief financial officer. “While we are doing that, we are taking the opportunity to refinance other debt to get lower interest rates and spread out debt service and to make the covenants more consistent with the master trust indentures.”
It also self-certified the first tranche as green bonds.
OHSU received ratings of Aa3 from Moody’s Investors Service and AA-minus from both S&P Global Ratings and Fitch Ratings ahead of the deal. All assigned stable outlooks.
The bonds will be priced in three tranches including a $335 million green bond series 2021A, a $70 million series 2021B1 and 2021B2 and $35 million in tax exempt debt Series 2021C for exchange, according to the offering documents. Melio & Co. is the municipal advisor and Orrick, Herrington and Sutcliffe is bond counsel.
The deadline for the tender offering is Wednesday, the day before the bonds will price.
The proceeds will help fund OHSU’s hospital expansion project, purchase space that is currently leased and refund debt including the series 2016A tax-exempt private placement bonds. Total debt will increase by approximately $300 million (33%) as a result of the bond offering, Moody’s analysts wrote in a Nov. 24 report.
“There are components of the debt we can refund directly, because they are callable now, and pieces that aren’t callable that we can’t do a tax exempt refunding for because of the 2017 tax law, so we are using a series of other techniques,” Furnstahl said. “We are just trying to take advantage of the fact we are going into the market to achieve interest rate savings, though the main purpose is funding the hospital expansion.”
Two tranches of $25.9 million and $49.1 million are included in the tender offer, according to offering documents. The tender exchange will be managed by J.P. Morgan Securities and Goldman Sachs & Co. Globic Advisors is the tender/exchange agent.
The proceeds from the new money bonds will help pay the costs of existing buildings that achieved LEED Gold or Platinum or future projects that achieve a certification greater than LEED Silver. OHSU believes the use of proceeds of the Series 2021A bonds are consistent with the International Capital Market Association standards for green bonds and meet the United Nations Sustainable Development goal of building sustainable cities and communities, according to the offering documents. OHSU says it will file annual updates regarding the use of the green bonds toward qualifying projects, but did not obtain third-party verification.
The expansion is a 15-story, 530,000 square foot building to be connected to OHSU Hospital by skybridges.
OHSU began the design for the expansion in 2019, but put the project on hold when the pandemic hit.
“The pause was both caution and a bandwidth issue,” Furnstahl said. “When you build a major expansion of your hospital, healthcare and clinical leadership are heavily involved. We did not want to pull away the nurses and doctors who were treating people during the pandemic to help make design decisions.”
The pause enabled OHSU to refine the project “and now we have an even better project and are ready to move forward,” Furnstahl said.
Both the state itself and the university were experiencing heavy demand for additional hospital capacity, even ahead of the pandemic.
“Oregon has the fewest number of hospital beds per capita of any state,” Furnstahl said. “We have a statewide footprint. Nearly half of our patients come from outside of the Portland area. We have been running adult surgical beds at 90% occupancy.”
OHSU already invested $360 million in outpatient services and has partnered with Hillsboro Medical Center and Adventist Health in Portland, he said.
“We have done everything we can to make sure the patient gets into the right setting,” Furnstahl said. “Even with all of that, we have tremendous demand — and that led to the expansion project.”
As the only major academic health center in the state, OHSU specializes in cancer care, surgeries, neuroscience, advanced surgeries for cancer treatment, fetal surgery and neo-natal care.
Its niche in those specialized offerings puts it in a unique position in Oregon and has also resulted in significant demand, he said.
