Henry Ford Health System hits the market with a $821 million refunding next week.

DALLAS – Detroit-based Henry Ford Health System, one of the largest healthcare systems in Southeast Michigan, hits the market with an $821 million refunding next week sporting an upgrade from one rating agency and a positive outlook shift from another.

The tax-exempt, fixed rate hospital revenue refunding bonds are expected to price on Tuesday via the Michigan State Hospital Finance Authority with Goldman Sachs and JPMorgan as lead managers. Ponder & Co. is the municipal advisor and Miller, Canfield, Paddock and Stone PLC is bond counsel.

S&P Global Ratings raised the system's rating one notch to A and assigned a stable outlook while Moody's Investor Service affirmed its A3 rating but revised its outlook to positive from stable.

The system has about $1 billion in outstanding bonds.

"With this offering we anticipate refinancing the majority of our bond debt which will generate significant savings both in present value and a reduction in annual debt service," the system's president Wright Lassiter III said during a recorded investor presentation.

The positive credit news follows a significant turnaround in fiscal 2015, said S&P, reversing weak financial performance since fiscal 2012 that accelerated dramatically in fiscal 2013, largely as a result of the costs associated with the installation of Epic Systems Corp. electronic health record and billing system. At the same time, the system struggled with limited revenue growth due to declining inpatient volumes.

S&P said it expects Henry Ford Health System will "sustain and build upon recently improved operations, and that the associated cash flow will continue to bolster key balance-sheet metrics."

Moody's said its outlook revision reflects its expectation that margins and cash flow will improve over the next several years.

"The S&P and Moody's bond rating action provide outside confirmation of our favorable market position and good financial trajectory," Henry Ford's chief financial officer, Edward Chadwick, said during the investor presentation.

The deal will refinance outstanding debt from issues in 2006, 2009, and 2014 as well as all of the system's outstanding Allegiance Health debt which will be folded into Henry Ford's indenture, creating a more efficient and streamlined debt structure, officials said. Henry Ford completed its acquisition of Allegiance Health earlier this year.

The bond refunding is expected to result in annual savings of $10 million for total present value savings of $100 million.

Henry Ford Health System is a five-hospital system headquartered in Detroit. The system is one of Michigan's largest providers and one of Detroit's top employers with more than 23,000 employees.

Henry Ford has 22.4% inpatient market share in its primary service area and 15.8% in the three-county area.

"The Michigan market is consolidating but Henry Ford maintains strong position despite consolidations in the area," Chief Operating Officer Robert Riney said during the investor presentation.

In April 2016, Henry Ford finalized the acquisition of Allegiance Health Group and Affiliates, since renamed Henry Ford Allegiance Health. It's a community hospital in Jackson, Michigan. The acquisition allows Henry ford to add size and scale to its overall operation in addition to nearly $500 million in revenue.

In February 2016, the insurance division acquired HealthPlus of Michigan, a health plan based more in the Flint area with approximately 70,000 members and $400 million in annual revenue. The system's acquisition of Health Plus and Allegiance added 20% of top side growth for the system, according to Chadwick.

"We believe that the M&A activity that we have done in the last five years have been absolutely financially accretive," said Chadwick.

Henry Ford is also entering the international market with the expected spring opening of Aldara Hospital and Medical Center in Riyadh, Saudi Arabia. The facility was developed under a licensing and intellectual property agreement and is modeled after Henry Ford's West Bloomfield Hospital.

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