Illinois Finance Authority Approves Issues for Northwestern, Advocate

CHICAGO The Illinois Finance Authority this week advanced borrowing plans for a handful of nonprofits including $125 million for Northwestern University, which is undertaking nearly $1 billion in campus improvements, and $180 million for Advocate Health Care Network to finance its acquisition of Condell Health Network.

Northwestern received final approval for its plan to issue this month up to $125 million of new-money, variable-rate bonds to finance campus improvements the school wants to quickly embark on following the end of the current semester. The projects total about $975 million and include $255 million for construction of a new Kellogg School of Management and $100 million for student housing improvements. The university will tap cash and other unrestricted grant funds to cover the full costs.

The deal's senior manager is Morgan Stanley, with William Blair & Co. serving as its financial adviser and Chapman and Cutler LLP as bond counsel. Northwestern carries current ratings of AA-plus from Standard & Poor's and triple-A from Fitch Ratings and Moody's Investors Service. Northwestern's main campus is located just north of Chicago in Evanston. It had an undergraduate and graduate enrollment of 15,000 at the start of the 2007 fall semester.

Advocate received preliminary approval to sell up to $180 million of debt to finance both the acquisition of Condell and to cover the costs of various improvement projects, according to IFA documents.

The system has not yet settled on details of the structure and is considering both fixed rate and floating rate. Advocate must return to the IFA board for final approval and the acquisition still requires the approval of the Illinois Health Facilities Planning Board and federal approval.

Advocate hopes to sell the debt this fall and is working with Citi, although additional underwriters may be announced when the system returns for final approval. Chapman is bond counsel.

Advocate and Condell announced the deal last month. Under the agreement, Advocate will finance the expansion of Condell's emergency department, construction of a 68-bed, private-room addition, and help it attain Level I trauma designation.

Condell is a 257-bed hospital located far north of Chicago in Libertyville. Advocate, based in the Chicago suburb of Oak Brook, operates seven acute-care hospitals in the area and is the largest system in the Chicago region.

Condell has suffered financially with declining profitability and debt service coverage and light liquidity. Based on unaudited 2007 financial results, its coverage of maximum annual debt service dropped to 1.8 times from 2.5 times in fiscal 2006. Rating analysts have also been concerned by the hospital's previous announcement that it found errors or misstatements may have occurred in previously issued financial statements.

Advocate has long looked at expanding north into Lake County, and the acquisition of Condell which carries $130 million of debt will allow the system to save money on construction of a new hospital while expanding its footprint. Advocate has about $770 million of outstanding debt and is rated AA by Fitch and Standard & Poor's and Aa3 by Moody's Investors Service. Fitch rates Condell BBB and Moody's rates it Baa2.

The Jewish Federation of Metropolitan Chicago won approval for its $40 million borrowing under a revenue anticipation note program. The federation uses the proceeds for cash-flow purposes to cover seasonal cash flow deficits at a lower cost than other types of bank loans. The group uses its savings of about $100,000 to expand its services. Harris NA will serve as the placement agent and KMZ Rosenman LLP is bond counsel.

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