CHICAGO — Catholic Healthcare Partners of Ohio, one of the country's largest nonprofit health-care systems, on Wednesday will begin selling $450 million of fixed-rate debt, followed by $230 million of variable-rate debt early next month.

CHP will use proceeds from the bond sales to pay off bank credit lines used to purchase a chunk of its outstanding auction-rate securities and acquire Cincinnati-based Jewish Hospital, as well as finance construction costs of a new hospital in Springfield, Ohio.

After the transaction, the 34-hospital CHP system will have $2.1 billion in outstanding debt. About 65% of the current debt is in a fixed-rate mode and 35% is in a variable-rate mode, a ratio that will remain roughly the same after the coming transactions, said Jerry Judd, CHP's vice president for treasury.

Standard & Poor's and Fitch Ratings rate the debt AA-minus and Moody's Investors Service rates it A1. Analysts praised the system for the strong position it maintains in most of its markets, which stretch across five states with a heavy concentration in Ohio. But analysts warned that CHP faces revenue challenges and fiscal stress tied to a 2008 acquisition of a struggling, four-hospital system based in Knoxville, Tenn.

In CHP's first bond transaction since 2008, its finance team, lead by JPMorgan, on Wednesday will begin taking retail orders on two series of fixed-rate debt, one for $110 million and one for $340 million. The institutional pricing will take place on Thursday.

Morgan Stanley is co-senior manager, and Bank of America Merrill Lynch, Edward Jones, Fifth Third Securities, and Wells Fargo Securities are co-managers. Ponder & Co. is CHP's financial adviser. Peck, Shaffer & Williams LLP is bond counsel.

Both series feature a final maturity of 2040. CHP plans to follow this week's issue with $230 million of variable-rate debt in the first week of May.

The variable-rate debt will be divided into series of $135 million and $95 million. Both are expected to be supported by letters of credit from JPMorgan and Scotia Bank.

Roughly $230 million of the total borrowing will be used to refund outstanding fixed-rate debt to achieve a net present savings of 5% to 8%, Judd said.

Another $175 million will be used to repay a bank credit line tapped to finance the March 1 acquisition of Jewish Hospital, and $235 million will be used to finance construction of a replacement hospital in Springfield.

Another $146 million will be used to pay back a bank credit line that CHP took out to finance a tender program for some of its auction-rate debt last month.

The system still has roughly $103 million of outstanding auction-rate securities, which it may or may not refinance going forward, Judd said.

"We're on a journey of restructuring them. Now the ARS will be at roughly 5% of our outstanding debt, " he said.

Prior to the February 2008 collapse of the ARS market, CHP had more than $910 million of debt in an auction-rate mode.

As the debt began to fail, the health care provider refinanced about $636 million of the securities into fixed-rate debt enhanced with bond insurance and variable-rate debt supported by letters of credit.

Heading into 2009, the system held roughly $260 million of remaining ARS, and after its March purchases it now has $103 million, Judd said.

Current interest rates hover around 0.5% on the debt.

CHP has about $850 million in debt that is hedged in a series of interest-rate swaps with counterparty JPMorgan that it will consider unwinding in the future to help achieve its 65% fixed-rate to 35% variable-rate ratio, according to Judd.

Like other issuers, the system was forced to post millions in collateral on the swaps amid market turmoil over the last two years, but has seen some recovery throughout 2009 and into 2010.

From a high of $83 million in collateral posted in 2008, CHP had posted $9 million as of Dec. 31, 2009, Judd said.

CHP as of last year had $1.6 billion unrestricted cash and investments in fiscal 2009, making the collateral postings manageable.

"Given the overall liquidity we carry on our balance sheet and the fact that the entry of the unrealized losses ran through our non-operating income, we actually managed it fairly well," he said.

The upcoming sales are likely to be CHP's last until 2012, officials said.

Its next big project is expected to be construction of a new hospital in Cincinnati that will replace two existing facilities.

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