CHICAGO -- The Flint Hospital Authority, Mich., is expected to come to market Tuesday with $59 million of junk-rated revenue bonds on behalf of Hurley Medical Center, a city-owned facility that serves as the local safety-net provider.
The long-struggling city of Flint has been under state control for 15 months. An emergency financial manager also controlled the city from 2002 to 2006.
The finance team on this week’s borrowing put out a supplement to bond documents last week to inform investors of the state’s new emergency management law, Public Act 436, set to take effect March 27, which authorizes an emergency manager to sell city assets like the hospital or enter into bankruptcy.
“If the city’s financial status were to deteriorate further, the city’s options to improve its fiscal health may be limited,” the supplement warns. “The effect of a city bankruptcy filing on the medical center, as a component unit of the city, or the authority, is unknown at this time.”
The city has no plans to either sell the hospital or file for bankruptcy. Hurley’s assets and revenues are held in an enterprise fund that is separate from the city’s general fund.
The 443-bed teaching facility is the area’s only provider of several services, including neonatal intensive care and a burn unit.
Its revenue totaled $362.5 million in fiscal 2012. Nearly 70% of that came from Medicare and Medicaid.
Medicare accounted for 27% of the medical center’s gross revenues in fiscal 2012 and Medicaid made up nearly 40%, according to bond documents. The reliance on federal and state funding is listed as an investor risk in bond documents.
Moody’s Investors Service rates Hurley Ba1 with a stable outlook. Fitch Ratings rates it BB-plus, also with a stable outlook.
“Uncertainty over the continuation of current Medicaid funding levels, given the state’s budget distress and national budget pressures, remains a significant credit risk,” Fitch analyst Dana Sodikoff wrote in a report on the upcoming deal.
Credit analysts also note that the hospital’s operating margins have improved in recent months.
“The assignment and affirmation of the Ba1 rating and stable outlook reflect our expectation that Hurley will maintain the improved and adequate operating results as experienced through six months fiscal year 2013, adequate debt coverage ratios, and that HMC’s balance sheet ratios will rebound,” Moody’s said in a release.
The bond deal is a mix of new money and refunding. The $59 million issue features two series, a $22 million series and a $37 million refunding. Proceeds from the new-money series will be used to finance capital projects and fund a debt-service reserve fund.
The system will have $100 million of outstanding bonds after the borrowing. Raymond James is the underwriter.