DALLAS — On the heels of a Fitch Ratings downgrade, the Sisters of Charity of Leavenworth Health System plans to issue more than $1 billion of revenue bonds this week for operations in three states.
The debt will come sold by three conduit issuers. The Colorado Health Facilities Authority will issue $621 million in two series, the Kansas Development Finance Authority will account for $203 million, and $218 million will come from the Montana Facility Finance Authority in two series.
JPMorgan and Morgan Stanley are co-managers on the negotiated deal, with Cain Brothers & Co. as financial adviser and Ponder & Co. as adviser on the Colorado bonds. Jones Day serves as bond counsel.
The bonds carry ratings of AA from Standard & Poor’s with a stable outlook.
Moody’s Investors Service, which downgraded the health system’s revenue bonds from Aa2 to Aa3 in May 2009, has not issued its rating on this week’s deal.
Fitch downgraded the Sisters of Charity to AA-minus from AA based on a higher risk profile after this issue.
“While days cash on hand and cash-flow margin remain near or above AA category medians, the elevated debt service resulting from this issuance produces pro forma coverage levels that are inconsistent with the prior rating,” analysts Carolyn Tain and Jonathan Mandel wrote in their report.
The health system, based in Leavenworth, Kan., operates 11 hospitals in Kansas, Montana, Colorado and California with revenues of $2.5 billion in fiscal 2009.
In the Denver area, the Sisters of Charity gained control of the Exempla Health system after two years of disputes and lawsuits.
The Sisters of Charity Levenworth Health System, a co-owner of St. Joseph Hospital, bought Exempla’s stake in that hospital along with Lutheran Medical Center in Wheat Ridge and Good Samaritan in Lafayette for $311 million.
In 2007, a group of doctors at the Lutheran Medical Center sought to block the sale because medical practices deemed unethical by the Catholic Church, such as abortion and tubal ligation, would no longer be offered.
The Exempla board had also opposed the transfer, saying its fundraising foundation, Community First, did not have the right to sell its stake.
“This acquisition has the potential to provide strong profitability improvement for the system over the medium term as Exempla operations are integrated into the system,” the Fitch analysts wrote in their report.
The Colorado conduit issuance will refund $292 million of fixed-rate bonds issued in 1998 and 2002 and refinance $225 million of taxable lines of credit.
In addition, the debt will provide a cash reimbursement for $54 million of capital projects along with $11 million of new money.
The Kansas conduit bonds will refund $120 million of 1998 and 2000 fixed-rate bonds and refinance $77 million of lines of credit.
The Montana bonds will refund $126 million of 1998 and 2010 fixed-rate bonds and take out $33 million of credit lines while providing $69 million for new projects.