Advocate Aurora Health turns to taxables for refunding

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Just past its first merger anniversary, Advocate Aurora Health will sell a taxable $363 million refunding with a rating outlook boost that signals the system is faring well through the early strains that sometimes come with joining operations.

The deal is selling Wednesday with Citi and JPMorgan as senior managers. Proceeds will refund bonds sold in 2011, 2012, 2013 and 2014 through the Illinois Finance Authority.


Moody’s Investors Service affirmed the Aa3 rating it assigned to the system after the April 2018 merger of Illinois-based Advocate and Wisconsin-based Aurora and revised the outlook to positive from stable. The system has $2.3 billion of debt.

The system should continue benefiting from its size and scale and ability to expand and leverage its experience across its regions.

“Moody's expects AAH will be able to integrate, as it has thus far, its two legacy systems without major disruption,” Moody’s wrote. “Also, the system will be better positioned to realize further synergies because of its more streamlined management structure and a common IT platform.”

The outlook change reflects Moody’s expectation that the system will achieve normalized operating cash flow margins that will strengthen the balance sheet and will benefit from a more streamlined management structure.

Pressures on the rating include “fierce competition in rapidly consolidating markets, pricing pressure and unfavorable payor mix shifts, particularly in the Illinois region, as well as elevated capital spend over the coming two years,” Moody’s said.

AAH operates 27 acute care hospitals in Illinois, Michigan, and Wisconsin and generates $12 billion of revenue annually.

S&P Global Ratings affirmed the system’s AA rating and stable outlook. The rating reflects “our view of AAH's broad and diverse position across two states, leading and stable position in the market as a whole, healthy balance-sheet measures with light debt, and fairly consistent operating margin trend and sound pro forma maximum annual debt service coverage over the past few years," said S&P analyst Suzie Desai.

Fitch Ratings affirmed the system’s AA rating and stable outlook supported “by the system's very strong financial profile assessment, leading market position over a broad and diversified service area covering the population centers of two states, and expectations for maintenance of a strong operating profile.”

AAH exceeded revenue growth and operating margin targets in fiscal 2018 and is on track to achieve savings through the integration process. In interim fiscal 2019, while inpatient admissions are down, AAH has benefited from volume gains in other key areas such as surgeries, observation stays, and total outpatient visits, Fitch said.

Unrestricted cash and investments measured more than $7.5 billion in fiscal 2018 and just over $8 billion for fiscal 2019. AAH had nearly 250 days cash on hand for fiscal 2018 and more than 260 days for fiscal 2019.

The two systems combined under a restated Advocate master indenture trust that incorporated the balance sheets of both.

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Not-for-profit healthcare Primary bond market Taxable bonds Refunding bonds Illinois Finance Authority Illinois Wisconsin
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