Buyout spares bondholders of struggling California hospital

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A merger into a larger health care system will make whole the bondholders of a struggling northern California hospital operator.

Adventist Health West, a faith-based nonprofit hospital system with 19 hospitals and 280 clinics in California, Oregon and Hawaii, is acquiring Fremont-Rideout Health Group.

Moody’s Investors Service on Friday withdrew its junk-level B1 rating of Fremont-Rideout bonds, citing the debt restructuring created by the merger.

California Attorney General Xavier Becerra approved the merger March 12 with the caveat that Rideout Memorial Hospital not be sold for 10 years and remain an acute care center.

Adventist officially acquired Fremont-Rideout April 1, agreeing to pay the principal and interest on $112 million in outstanding revenue 2011 revenue bonds, according to documents posted on the Municipal Securities Rulemaking Board’s EMMA website. As part of the merger agreement, Adventist completed a master note substitution for all of Fremont-Rideout’s long-term debt.

The city of Marysville was conduit issuer of the 2011 bonds, which financed construction of a six-story hospital tower adjacent to Rideout Memorial Hospital.

Fremont-Rideout operates the Rideout Regional Medical Center, the Heart Center at Rideout, the Cancer Center affiliated with UC David Medical Center and outpatient clinics and senior living facilities in the adjoining cities of Yuba City and Marysville, 40 miles north of Sacramento.

Fremont-Rideout also defeased on March 30 three 2006 bond series totaling $20.6 million that were issued through the California Statewide Community Development Authority and redeemed on March 28 $1.13 million in outstanding 2003 auction rate debt, according to bond documents.

S&P Global Ratings upgraded the health group’s bonds April 10 from BBB-minus to A and changed its outlook from positive to stable.

"The ratings and outlook reflect the consummation of FRHG's affiliation agreement with Adventist Health System/West on April 1, 2018," said S&P analyst Allison Bretz.

Going forward, Fremont-Rideout’s bonds will carry the same rating as Adventist Health West bonds, S&P said.

Fremont-Rideout was downgraded to junk by Moody’s and S&P in October 2016 as it struggled with cash flow problems that resulted in violations to its bond covenants.

The hospital laid off 106 employees in March 2017 and cut ties with four clinics in Nevada County that provided home health, hospital and medical equipment services.

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Healthcare industry Revenue bonds Speculative grade bonds Restructuring California Statewide Communities Development Authority California Hawaii Oregon