CHICAGO — Springfield, Ill.-based Hospital Sisters Services Inc. will refund $180 million of bonds Wednesday, shedding some of its floating rate exposure.

Bank of America Merrill Lynch and JPMorgan are underwriting the bonds, which will refund debt from a 2012 issue including a mix of fixed-rate and floating-rate securities from various series. Some of the variable-rate debt is supported by self-liquidity and some by a letter of credit. The Wisconsin Health and Educational Facilities Authority is conduit issuer.

Ponder & Co. is advising the system. Its parent Hospital Sisters Health System operates 14 hospitals in Illinois and Wisconsin. Chapman and Cutler LLP is bond counsel.

Ahead of the sale, Fitch Ratings and Standard & Poor's affirmed AA-minus ratings and stable outlooks.

The system is reducing risk in its debt portfolio "to position for potential financing for the replacement of St. Elizabeth Hospital, which will be built in O'Fallon, less than seven miles from its current location" in Belleville, Ill., Fitch wrote.

If state regulators approve a certificate of need for the project, the system would likely finance the hospital in 2017. The system announced plans for the $300 million replacement hospital in June.

Fitch said the Hospital Sisters benefits from a healthy liquidity position with $1.8 billion of unrestricted cash and investments covering 345 days of operations and offsetting the system's light but improving operating profitability.

Physician alignment is a priority for HSSI and fully aligned physicians have grown significantly over the last few years with 824 in fiscal 2014, up from 588 in fiscal 2013 and 542 in fiscal 2012.

"Fitch believes this significant level of integration should position the system for continued pressures on reimbursement and clinical quality metrics," analysts wrote.

The system's challenges include stagnant growth in some of its markets and reliance on Wisconsin hospitals to cover losses at some of its Illinois facilities posing "credit concerns," Fitch said.

The rating "reflects our view of HSHS' leadership's ability to implement a strategic plan that helped improve the system's operations while maintaining its strong balance sheet," said Standard & Poor's analyst Brian Williamson. The stable outlook reflects analysts' opinion that HSHS' senior management will achieve a targeted 1% operating margin in fiscal 2015.

The system's latest addition came in September with the acquisition of St. Clare Hospital, a critical care facility in Wisconsin that will not be included in the system's obligated group. In fiscal 2014, the system had 1,951 beds in operation and total revenue of $2.1 billion, Fitch said.

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