DMC Gets White Knight

Fitch Ratings placed the Detroit Medical Center’s revenue bonds on positive watch and affirmed its BB rating Monday after a for-profit health care system announced it was interested in taking over the state’s largest charity care hospital.

The change affects $500 million of outstanding debt issued from 1993 through 1998, the last time DMC entered the market. Officials pulled a $340 million bond sale planned for October 2008 after the credit market contracted.

The positive watch reflects the March 19 announcement that Tennessee-based Vanguard Health Systems Inc and DMC have entered into a nonbinding letter of intent for Vanguard to acquire all the assets and debts held by DMC.

“Should the acquisition of DMC by Vanguard be consummated, all of the outstanding bonds listed above would be defeased contemporaneously with the closing of the acquisition and all of the bonds would be paid or redeemed within 90 days of the closing,” said Fitch analyst James LeBuhn in a release.

The letter will expire in June.

DMC operates eight hospitals, five of which are located in downtown Detroit. Under the deal, Vanguard would pay $417 million for DMC and assume all its debt, which includes $490 million of outstanding bonds and other long-term liabilities.

Vanguard also agreed to spend $850 million on capital improvements, including $800 million in Detroit. The city would need to set up a tax-free Renaissance Zone on DMC’s central campus. The zone requires city, county, and state approval, and would allow Vanguard to avoid local property taxes for 15 years. 

Moody’s Investors Service and ­Standard & Poor’s both said last week that they were taking no action but would continue to monitor the situation.

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Healthcare industry
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