CHICAGO — UC Health, which operates the primary safety-net hospital in Cincinnati, is coming to market Tuesday with $207.5 million of revenue bonds to finance capital projects.
It is the system’s first issue under a new, smaller corporate structure. Formerly known as Health Alliance of Greater Cincinnati, the group changed its name to UC Health after the departure of four hospitals in the past two years.
The group now consists of the 648-bed University Hospital, which is Cincinnati’s largest, and the 162-bed West Chester Hospital, as well as a physician network, a rehab hospital, and other facilities. University Hospital is the primary teaching hospital for the University of Cincinnati, and the only academic medical center in the region.
The system serves southwest Ohio, northern Kentucky, and eastern Indiana.
Under the new structure, Moody’s Investors Service revised its rating on the debt to Baa1 from A2. Standard & Poor’s rates the upcoming bonds BBB-plus.
RBC Capital Markets is the senior manager on the deal. Bank of America Merrill Lynch and Cain Brothers round out the underwriting team.
Thomson Hine LLP is bond counsel. Butler County is issuing the debt on the hospital’s behalf.
The debt is tentatively structured to include bonds that mature serially from 2011 through 2020 and three series of term bonds maturing in 2025, 2030, and 2040.
The bonds are secured by a general obligation pledge of the obligated group, and proceeds will finance a variety of capital projects at locations that include the relatively new West Chester Hospital.
The new, smaller corporate structure will strengthen UC Health in some ways but it’s still early in the transition, Moody’s said.
“Under a new corporate structure, we believe UC Health is developing clearer strategies to better position the system competitively, but faces a number of uncertainties related to continued transition over the next year,” analyst Lisa Martin wrote in a recent report.
Among the uncertainties is how the smaller system will navigate the intensely competitive Cincinnati market, as well as the crafting of new managed care contracts, and an “evolving” relationship with the University of Cincinnati that could lead to a new academic agreement.
The system also could face challenges tied to its high level of Medicare patients. About 29% of gross patient charges were derived from Medicare for the fiscal year ended 2010, according to bond documents. Changes to the Medicare program may significantly affect the provider’s revenue, documents warned.
The new federal health care law is expected to increase the number of people covered by Medicare and UC Health’s revenues could be dampened by decreased reimbursement, and reduced disproportionate share funding, documents said.
The system had $165.2 million of debt at the end of fiscal 2010.
