CHICAGO — St. Louis-based Ascension Health on Wednesday launches the first piece of its $1.34 billion new-money and restructuring deal that will raise funds for projects across its network, while also allowing the system to further reduce risk exposure and lower its maximum annual debt service.

“The goal is to reduce our risk profile by reducing our puttable debt and increasing our fixed-rate debt and to reduce our maximum annual debt service so that we are better able to provide services that carry out our mission,” said Steve Gilmore, Ascension’s director of capital finance.

The nation’s largest nonprofit health care provider will enter the market Wednesday with the fixed-rate piece of the deal, selling $670 million of mostly new-money 30-year bonds that are tentatively set to mature serially and could include some terms.

Citi and Morgan Stanley are serving as underwriters and remarketing agents on the transaction. Kaufman Hall & Associates Inc. is financial adviser and Orrick Herrington & Sutcliff LLP is bond counsel.

The system is issuing its bonds through five authorities based on the location of its facilities: the Connecticut Health and Educational Facilities Authority, the Michigan State Hospital Finance Authority, the Wisconsin Health and Educational Facilities Authority, the Rutherford County, Tenn., Health and Educational Facilities Board, and the Tarrant County, Tex., Cultural Education Facilities Finance Corp.

The floating-rate piece — $675 million — will carry a final maturity in 2050. About $236 million of the deal is structured in a “windows mode” and that piece will price on March 16. The remainder is structured as seven-day variable-rate bonds and that piece will be marketed on March 24. The highly rated system provides its own self-liquidity.

The system last year first tapped the new windows-mode product created by Citi that features a seven-month put. Ascension turned to it as part of its larger goal to ease the pressures on its balance sheet in the event its bonds were tendered.

“It’s worked very well for us so we are including more in our debt structure,” Gilmore said.

Citi designed the product as a way to deal with the lack of affordable bank-backed liquidity. Part of the product’s attraction is that it allows money market funds and other buyers to decrease the amount of bank-backed paper in their portfolio. 

As part of the ongoing revamping of the system’s debt portfolio, Ascension also will use $538 million in cash to defease existing floating-rate debt. Once all the borrowing and cash defeasance are completed, Ascension will see a drop to $500 million from $800 million in its debt that is remarketing weekly.

Its maximum annual debt service will drop to $228 million from $252 million. Its puttable debt that is currently in several forms of floating rate will fall to $2.6 billion from $3 billion and fixed rate will represent 45% of its overall debt portfolio, up from 30%. The low interest rate environment and strong interest for higher-rated credits, even in the health care sector, drove the timing of the­ ­transaction.

Ascension’s $4.2 billion debt portfolio carries ratings of AA-plus from Fitch Ratings, Aa1 from Moody’s Investors Service and AA from Standard & Poor’s. All assign a stable outlook, and had not released new reports by press time.

Standard & Poor’s last year revised the system’s outlook down from positive as the system suffered from steep investment losses that had hurt its liquidity levels. At the time, analyst Kevin ­Holloran said: “A higher rating is possible over the longer term if Ascension’s key balance-sheet measures begin to improve and operational strength demonstrated in recent years ­continues.”

The system had generated $1.31 billion in net income for the first six months of its fiscal year through December, including $317 million of operating income for a 4% margin, up by $178 million over the same period a year earlier. Total assets grew $803 million to $16.9 billion between June and December due to non operating gains from an investment market rebound, according to the preliminary offering statement.

The system’s credit is supported by its size and geographic diversity, with facilities that generate more than $12 billion in operating revenue annually, according to ratings reports from last year. Ascension operates 73 hospitals in 20 states and the District of Columbia.

Challenges include managing such a big capital program, slightly higher-than-average leverage, and competition posed by other providers in some of Ascension’s largest markets, according to rating ­reports.

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