CHICAGO — Novi, Mich.-based Trinity Health Corp. received preliminary approval from the Illinois Finance Authority board this week for its planned sale of about $550 million of debt tied to its recent acquisition of Loyola University Health System in suburban Chicago.
Trinity, which operates 46 acute-care hospitals and other health care facilities in nine states, closed on its acquisition of Loyola in late June. Trinity’s facilities generated more than $7 billion in revenues in fiscal 2010 and it carries more than $3 billion in cash and assets. Its debt totals $2.7 billion and the system is in the midst of a $2.4 billion capital campaign.
Trinity would use most of the proceeds of the transaction to refinance $350 million of commercial paper used to defease Loyola’s total bonded debt, reimburse itself up to $175 million for the cash cost of acquiring Loyola, and to raise $19.5 million to fund working capital for Loyola’s facilities. Loyola’s facilities include its main campus in Maywood and Loyola Gottlieb Memorial Hospital in Melrose Park.
Trinity is still putting together a structure that may include both fixed-rate or floating-rate securities, depending on market conditions, and final IFA board approval is still needed.
Trinity carries ratings in the mid-double-A category from all three agencies. The debt would be secured under Trinity’s master trust indenture.
Goldman, Sachs & Co., Bank of America Merrill Lynch, Loop Capital Markets LLC, and Cabrera Capital Markets LLC make up the underwriting team. Kaufman Hall & Associates is financial advisor with Hawkins Delafield & Wood LLP as bond counsel.
Trinity anticipates a fall sale.
The Trinity marriage helped Loyola University win an upgrade from Moody’s Investors Service as the sale of what was previously a wholly owned subsidiary of the school removed a strain on its balance sheet. Loyola had provided operational and liquidity support to avoid a covenant default.
LUHS retained all of its liabilities, including its debt, swaps, pension, and post-retirement obligations, which were moved from Loyola University’s balance sheet to Trinity’s. The university will continue to operate the Stritch School of Medicine.
Under the deal, Loyola committed to covering half of the cost of a $150 million medical research building on its medical school campus. As part of the sale, Loyola received $80 million of up-front funds and $20 million in escrow that will be released over four years. LUHS will pay academic support payments of $22.5 million per year to LUC for an initial 10-year period, according to the Moody’s report.
The Catholic-sponsored Trinity operates facilities in California, Idaho, Illinois, Indiana, Iowa, Maryland, Michigan, Ohio, and Oregon. LUHS previously carried a low investment-grade rating. Its hospitals and other health care facilities generated $1 billion of revenue in fiscal 2010.
Trinity reported providing $456 million of community benefits in fiscal 2010, a line item on hospital balance sheets that has come under heightened scrutiny in Illinois. The Department of Revenue on Tuesday denied property tax exemptions for three hospitals, including Northwestern Memorial’s Prentice Women’s, Edward Hospital, and Decatur Memorial Hospital, over the level of their charitable and community benefits.
The IFA board gave preliminary approval to BNSF Railway Corp.’s proposal to issue up to $40 million of Midwestern Disaster Area revenue bonds to finance a portion of the ongoing cost of reconstructing a bridge site in Gulfport over the Mississippi River. The federal program enables a tax exemption on private-activity bonds being issued for qualified privately owned economic development projects in 18 federally designated counties in Illinois that suffered damage in mid-2008 from floods and storms. The program expires at the end of 2012.
BNSF may bring the bonds to market or use a direct purchase structure in a fall sale. Pugh, Jones, Johnson & Quandt PC is bond counsel and the underwriters have not yet been named.
“The Burlington Bridge between Burlington, Iowa, and Gulfport, Ill., is a vital Mississippi River crossing and is a critical element in transcontinental railway routes across the United States,” according to IFA documents.
The bridge is in need of reconstruction, as it has been identified by the Coast Guard as a hazard to river navigation. It has been struck 92 times since 1992. It was originally built in 1868 as one of the first rail bridges to span the Mississippi River. About 29 trains use the bridge daily. In addition to freight, it is part of Amtrak’s network and used by the California Zephyr line between Chicago and the San Francisco area.
