CHICAGO – The highly-regarded Rehabilitation Institute of Chicago received a first time rating of A-minus from Fitch Ratings that banks on a successful fundraising campaign to help repay debt being issued to finance a $550 million replacement facility needed to deal with capacity constraints.
Fitch Ratings assigned the A-minus rating and stable outlook to an upcoming fixed-rate public issue of $125 million. RIC will privately place another $275 million of variable-rate debt with banks. That debt is not rated by Fitch.
The Illinois Finance Authority is serving as conduit and its board gave final approval to the deal last month. The state regulatory agency that oversees new hospital construction signed off on the project in February.
The public issue, expected in June, along with the privately placed debt, will refund about $110 million in current debt with the remainder providing new money to finance a new 242-bed, 27-story replacement hospital about two blocks from RIC’s current home in downtown Chicago.
JPMorgan, Goldman Sachs, and Loop Capital Markets LLC are underwriters with Hammond Hanlon Camp LLC advising RIC and SNR Denton LLP serving as borrower’s counsel. Jones Day is bond counsel. Bond payments will secured by a pledge of gross revenues of the obligated group.
The rating reflects RIC’s international reputation as a leader of physical medicine and rehabilitation services and research, which drives strong demand for its services. Its leadership position in the field should allow RIC to grow into its heavy debt burden which is high given RIC’s financial metrics in the current rating category, Fitch said.
RIC’s fundraising campaign aims to bring in $260 million through 2016. It has raised about $165 million so far. If the goal is not achieved, RIC could face a downgrade. “The successful execution of RIC’s capital campaign allowing for the planned decrease in pro forma leverage and achievement of projected targets are critical factors in maintaining the current rating in the near to mid-term,” Fitch said.
Cash from RIC investments, operations, and an expected $40 million from the sale of RIC’s existing hospital building will also contribute to financing total development cost, according to IFA documents.
The hospital benefits from stable operating profitability and strong unrestricted liquidity that covers 298 days of operations. Its cash to pro forma debt metric is weak for the rating level. After fundraising, maximum debt service should fall to $15.9 million from $21 million. Principal repayment begins in 2018. Credit concerns include construction risks and a lack of diversification across service lines.
RIC operates a health care system that specializes in comprehensive rehabilitation services for the physically disabled. It generated $212 million in operating revenues in 2012. It currently operates a 182-bed hospital and outpatient facility downtown and other non-hospital facilities in the Chicago area that provide outpatient day rehabilitation, outpatient, vocational and recreational care and activities.
“In order to continue to effectively support RIC’s mission and manage capacity constraints, RIC leadership determined that a replacement hospital was needed,” read IFA documents. “This determination was driven by several factors, including: an aging current facility built almost 40 years ago that is no longer effective to meet current rehabilitation standards.”
The facility turned away 600 patients in fiscal 2012. The new hospital will occupy 17 floors, with another seven housing a parking garage, and three providing medical office space. The new facility will also provide more space for outpatient services and research.
RIC intends to break ground in July and open the new facility by early 2017. RIC’s patients came from across the country and 68 countries in 2012. Its research led to the world’s first bionic arm and bionic leg.