The University of Pittsburgh Medical Center next week will issue $720 million of tax-exempt revenue bonds, part of the health care provider’s $1.1 billion debt refinancing plan.

UPMC’s refinancing strategy will increase the amount of fixed-rate debt in its debt portfolio to 80% from 70% and terminate 10 of its 14 derivatives. The remaining 20% will comprise of variable-rate debt. The health care provider has $3.2 billion of outstanding bonds.

In the week of Feb. 15, the Allegheny County Hospital Development Authority, as conduit issuer, will sell $400 million of fixed-rate Series 2010A bonds, with serial maturities from 2010 through 2025. The transaction will include two term bonds with maturities to be determined, according to the preliminary official statement.

Refinancing candidates include prior bonds and notes the ACHDA sold on behalf of UPMC between 1988 and 2008.

Also next week, the Pennsylvania Higher Educational Facilities Authority will sell $320 million of fixed-rate Series 2010E bonds. Serial maturities will range from 2010 through 2025 and the deal will also include two term bonds, according to the POS.

Refinancing candidates include Series 1999A and Series 2001A bonds that PHEFA sold on behalf of the health care provider.

Bank of America Merrill Lynch is book-runner for the Series 2010A bonds. PNC Capital Markets LLC is the senior manager for the Series 2010E bonds. Eckert Seamans Cherin & Mellott, LLC is bond counsel for both transactions. Melio & Co. is UPMC’s outside financial adviser.

Standard & Poor’s rates the Series 2010A and Series 2010E bonds A-plus. Moody’s Investors Service and Fitch Ratings rate UPMC Aa3 and AA-minus, respectively.

Following the Series 2010A and Series 2010E bond deals, UPMC plans in March to sell approximately $485 million of floating-rate debt with the ACHDA as conduit issuer, according to the POS. That transaction will refinance variable-rate debt currently swapped to a synthetic fixed rate and keep the bonds in floating-rate mode with letters of credit.

In total, the $1.1 billion refinancing plan will end 10 of UPMC’s 14 swaps, according to the POS. The notional amount of the swaps is $1.15 billion, “although $364 million of that amount is essentially double counted because total return swaps are often issued as a series of interrelated swaps,” according to Standard & Poor’s.

UPMC’s senior vice president and treasurer, C. Talbot Heppenstall, and Standard & Poor’s said the cost to terminate the 10 derivatives will be manageable.

“We’re not going to pay a lot of money to get out of them,” Heppenstall said. “The interest rate swaps have worked very well for us. They’ve given us a very attractive variable-rate borrowing cost, but we just feel that it’s time to move to a structure that uses banks to get that borrowing cost instead of the swap market.”

Standard & Poor’s assigns UPMC a debt derivative profile score of 1.5 on a scale of 1 to 4, with 1 representing the lowest risk. The DDP score will probably stay at 1.5 after the terminations, according to a Standard & Poor’s report.

“A lot of their swaps are what you call total return swaps,” said Standard & Poor’s analyst Liz Sweeney. “And most total return swaps collapse at zero once you take out the underlying bonds, so a lot of their swaps are just not going to have any payment in either direction.”

In addition, the refinancing plan will help pay down roughly $11 million of outstanding debt associated with UPMC’s Braddock Hospital, which shut its doors on Jan. 31.

“A very small part of the proceeds were used at Braddock and we have to remediate those proceeds,” Heppenstall said.

Opponents tried to stop Braddock’s closure, claiming prior bond documents require UPMC to keep the hospital open. On Jan. 29, the Court of Common Pleas of Allegheny County ruled in favor of closing Braddock.

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