CHICAGO - The Cleveland Clinic Health System today enters the market with $375 million in fixed-rate revenue bonds, the first in a series of issues totaling $1.1 billion over the next few weeks.
In advance of the sale, Moody's Investors Service boosted its rating to Aa2 from Aa3 on the new issue and the system's outstanding debt. Anchored by an international clinical reputation and dominant market position in northeast Ohio, CCHS is strengthened by a strong operating performance and liquidity, Moody's said in its report on the upgrade.
Standard & Poor's rates the system's debt AA-minus.
JPMorgan is the lead underwriter on the transactions. The Ohio Higher Educational Facility Commission is acting as conduit issuer. Squire, Sanders & Dempsey LLP is bond counsel to the commission. Jones Day is the clinic's special counsel.
Of the total $1.1 billion of planned issuance, about $620 million will refinance all of the system's outstanding auction-rate bonds. Proceeds from another $500 million will finance a series of capital projects at the system's facilities, which include 12 hospitals and 18 family health centers. The new-money piece of the transaction is part of a larger capital campaign that is expected to total $2.3 billion through 2011.
The $375 million in fixed-rate bonds consist of serial bonds that mature from 2012 to 2028, a term bond that matures in 2033, and bullet maturities in 2038 and 2043.
The bonds are special obligations of the state and are payable from hospital receipts under CCHS' lease with Ohio.
The size and structure of the remaining transactions have not been announced yet, though it's expected that it will include about $750 million in variable-rate demand bonds with various tranches that will be remarketed daily and weekly and is expected to include some commercial paper.
The clinic plans to use its own liquidity to support the variable-rate pieces of the deal. About $113 million of the borrowing will go to help boost the system's liquidity as it will be invested in securities that can be redeemed the same day, wrote Moody's analyst Lisa Martin in the ratings report.
The new investment will bring to $422 million the amount invested in same-day liquid securities. In addition to its same-day liquidity, CCHS has about $1.3 billion of fixed-income and equity investments that it could liquidate if necessary within one week, Martin said. The system's operating revenue totaled $5 billion in 2007.