WASHINGTON — Florence County, S.C., will begin issuing $122.4 million of revenue bonds Monday for several projects at the McLeod Regional Medical Center as the hospital chain has demonstrated credit strength despite a struggling regional economy and the changing health care environment.

The Series 2010A bonds will be issued to retail investors today and to institutional investors on Tuesday. The bonds will mature in one to 10 years with bullet maturities in 2025, 2030 and 2037.

Proceeds will be used to fund new orthopedic and sports medicine centers, among other construction projects at the medical center, which is located in the northeast part of the state near the North Carolina border.

The bonds are being issued after Standard & Poor’s in June revised McLeod’s rating outlook to positive, saying the three-hospital health care provider has an increasingly strong balance sheet and healthy debt-service coverage.

McLeod is rated A-plus by Standard & Poor’s and AA-minus by Fitch Ratings with a stable outlook.

JPMorgan will be lead underwriter and Wells Fargo Securities co-underwriter. Haynsworth Sinkler Boyd PA is bond counsel with Ballard Spahr LLP representing the underwriters. Kaufman Hall & Associates is the financial adviser.

McLeod’s fiscal strength distinguishes it from the rest of the health care pack. The ratings for nonprofit providers are likely to remain under pressure for the second half of 2010, Moody’s Investors Service said in a report earlier this month. Medicare funding for health care providers is being reduced just as the economic recovery sputters, the report said.

In the second half of 2010, 12 health care providers were downgraded by Moody’s, up from eight in the first quarter. Moody’s, which does not rate the McLeod system, maintains a negative outlook for the nonprofit health care sector.

McLeod has had to cope with a particularly harsh regional economy. Its coverage area has a 14.6% unemployment rate, well above the state and national averages, according to Standard & Poor’s. The hospital chain also relies heavily on Medicare and Medicaid programs.

The high unemployment rate is an “offsetting factor” to the rest of McLeod’s strong credit profile, said Charlene Butterfield, the primary credit analyst on McLeod for Standard & Poor’s.

Unemployment in the coverage area has been persistently high for years, even before the recession, meaning McLeod has historically performed well under these conditions, said Emily Wadhwani, the lead analyst on the credit for Fitch.

McLeod is the leading health care provider in its coverage region with 41% of the market in 2008, according to Standard & Poor’s. The projects to be financed with the bonds are expected to strengthen McLeod’s market position because South Carolina’s certificate of need requirements limit the expansion projects hospitals can undertake, Wadhwani said.

McLeod expects to issue $50 million of Series 2010B variable-rate demand bonds at a later date to refund $33 million of previously issued auction-rate securities and other debt. After the bonds are issued, the system will have about $272.9 million of debt outstanding. McLeod had a manageable pro forma debt burden of 2.6% of revenue through April 30, according to Standard & Poor’s.

In the years to come, McLeod is going to be an indicator of the success of the health care overhaul passed earlier this year, Wadhwani said. Medicare funds passed along by South Carolina are expected to decline once patients begin to receive coverage from Medicaid or state insurance pools, she said. The system will maintain its credit strength if the funding from insurance compensates for the loss of funding coming from the state.

“This will be one of the credits where the rubber hits the road to see if Medicaid payments are sufficient to offset a reduction in the [state’s] funding,” Wadhwani said.

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