CHICAGO - Indiana health care giant Clarian Health Partners, dogged in recent months by an Internal Revenue Service audit into its 1996 merger deal, plans to sell about $150 million of fixed-rate bonds tomorrow for capital improvements.
The fixed-rate revenue bonds will be followed in about three weeks by $200 million of variable-rate bonds, according to Ed Malmstrom, managing director at Merrill Lynch & Co., which is co-senior manager on the deal with Salomon Smith Barney Inc. Both deals will close at the same time.
The bonds will be issued through the Indiana Health Facility Financing Authority.
Clarian has not yet decided whether to insure the highly rated deal. It carries a AA rating from both Fitch and Standard & Poor's and a Aa3 by Moody's Investors Service with a stable outlook.
Clarian had originally planned a $450 million variable-rate deal for June. Malmstrom said the deal was delayed for a variety of reasons, but not because of the IRS audit, which was announced in August.
"It was a significant amount of debt and projects," Malmstrom said. "Upon closer reflection, they decided some of the projects could be deferred if necessary, rather than borrowing for them all at one time."
Malmstrom said the health care system wanted to hit the "just-right level" of capital expenditures without negatively impacting its credit rating with too much debt. "We landed in an amount that nicely fit into that spectrum -- we're borrowing a significant amount of money but we're still nicely in the double-A category," he said.
The issue will be Clarian's first venture into the bond market since 1996, when the system was created from the combination of Methodist Hospital, Indiana University Hospital, and Riley Hospital for Children. Clarian issued $222 million for acquisition and capital costs that year.
The IRS is currently investigating whether the debt issued in that 1996 financing for Clarian and several other similar health care mergers should be regarded as new-money issues or refundings.
If acquisition-financing bonds cannot be classified as new money, they could lose their tax-exempt status if the refunded bonds had previously been advance refunded.
While he admitted that the audit is a "complicating factor" for the health care system, Malmstrom said the audit does not impact the upcoming issue or Clarian's tax-exempt status.
The upcoming issue will pay for a "people mover" monorail system to connect its Indianapolis hospital campuses, a new outpatient center, information systems, and other projects.
Fitch analyst Anthony LoVaglio noted that AA is the highest rating the agency gives to health care systems.
"This is a merger that has worked," Lovaglio said. "A lot should be attributed to management. They have a very strong management team. They've really brought all of these facilities together."
