Cleveland Clinic joins parade of issuers turning to taxables

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After completing a big acquisition refinancing earlier this year, Cleveland Clinic is returning to the market Tuesday with a $250 million taxable advance refunding.

The bonds will advance refund debt sold in 2011, 2012 and 2013.


“Cleveland Clinic has set a high bar for savings thresholds in order to proceed with the refundings," said Angela Smith, a spokeswoman.

Barclays, Citi and UBS Financial Services are co-senior managers. Melio & Co. is advising Cleveland Clinic.

The bond refunding follows a nearly $1 billion offering the system priced in April as it integrates recent Florida acquisitions into the Cleveland Clinic brand. Ahead of the sale, Moody’s Investors Service and S&P Global Ratings affirmed the system’s Aa2 and AA ratings, respectively. Both assign a stable outlook.

The system has nearly $5 billion in debt outstanding and $1.1 billion of that is comprised of direct placement debt and variable-rate demand bonds backed by bank facilities or with the system's self-liquidity program. Smith said the upcoming bond refunding won’t make any major changes to the Clinic’s debt profile.

The system anticipates issuing $300 million of new money debt every other year beginning in 2021. “We believe that CCHS has capacity for debt at the rating level, assuming it continues to execute on its long-range plan as it has done historically,” S&P said.

Cleveland Clinic increased its Florida market share to 10% from 2% following last year’s acquisition of two Florida-based entities, Martin Health and Indian River Medical Center. The expanded presence in Florida will provide opportunities in a growth market, improve the system’s market position, and provide capacity for patient demand.

“One of our major areas of growth over the last year and a half has been in Florida,” Chief Financial Officer Steven Glass said in an investor presentation. “We are in the middle of integration across all of these [Florida] facilities.”

The system is also expanding its Ohio operations and recently announced a non-binding letter of intent to acquire Mercy Medical Center in Canton.

“Limited information about this entity is available at this stage, however, we don't expect it would affect our overall assessment of CCHS given MMC's relatively small size with 476 licensed beds,” S&P said in a report.

The system earlier this year tapped the bond market to finance acquisition related debt. Some of the proceeds from the $930 million bond sale in April was used to take out Florida-based Martin Memorial Medical Center bonds. The system also issued roughly $392 million private placement in August to complete funding for a new hospital in central London.

Cleveland Clinic’s health system includes its main campus near downtown Cleveland, 10 regional hospitals and more than 150 northern Ohio outpatient locations.

In Florida, the system operates five hospitals located throughout southeast Florida. In addition, the System is constructing a wholly-owned 185-bed hospital in central London.

It also operates health and wellness centers in West Palm Beach, Florida, and Toronto, Canada, and specialized neurological clinical centers in Las Vegas and Abu Dhabi, United Arab Emirates.

The health system reported $8.9 billion in total revenue in fiscal 2018.

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