CHICAGO - The Illinois Finance Authority board yesterday advanced borrowing plans totaling $500 million for health care facilities in the state, including up to $350 million for Northwest Community Hospital to finance a new patient tower and other projects and to refund existing debt.
The licensed 488-bed Northwest Community Hospital in the Chicago suburb of Arlington Heights would use about $123 million from the sale to help finance a $250 million construction program that includes plans for a new 289,000 square-foot patient tower, a 770-space parking garage, emergency department, and other projects. The plan is aimed at modernizing the hospital's facilities to help it remain competitive and to ease restraints on growth as it has struggled with capacity constraints.
The deal, expected to price this summer, would also allow Northwest to refinance a taxable line of credit that was tapped to refund auction-rate bonds from a 2002 issue. The hospital also will refund other variable-rate bonds from a 2002 issue with proceeds of the new deal.
Northwest intends to use a mix of floating- and fixed-rate bonds in the deal with about 60% fixed and the remainder in a variable-rate demand mode backed by a letter of credit. The hospital is considering insurance on the fixed-rate piece.
Goldman, Sachs & Co. is the underwriter, while Kaufman Hall & Associates Inc. is serving as financial adviser and Jones Day is bond counsel.
Ahead of the sale, Standard & Poor's downgraded the hospital's credit to AA-minus from AA as analysts believe its financials no longer support the higher rating level.
"The lower rating reflects NCH's overall financial profile, that remains solid, but that is no longer reflective of the AA rating category," analyst Antionette Maxwell said. She added that the lower rating incorporates the new debt issuance.
While still doing well, the hospital has seen a softening of its volume trends in recent years. Last year, inpatient admissions were at 25,143, down from 26,992 in 2006 and 27,002 in 2005. The decline was partially offset by increased outpatient observation patients. Officials also attribute the decline partially to capacity constraints and the disruption caused by ongoing construction.
NCH's operating income was $7.4 million in 2007 and $5.8 million in 2006 - figures that are positive but weaker than historical trends. That's partially due to the financing of several initiatives, including implementation of a hospital-wide clinical documentation system. Debt service coverage was solid at 4.8 times for fiscal 2007 and 3.1 times for the seven months ended Apr. 30. For fiscal 2007, unrestricted cash and investments totaled $454 million.
While the hospital's capital program is adding debt to its books, the projects are expected to help the hospital remain competitive. Construction of some of the projects has already begun and all will be completed over the next three years. The hospital will use about $114 million from reserves to help cover the costs with another $10 million expected from donations.
The independent hospital operates in a "very competitive" region and enjoys a strong leading market share of about 55% in its primary service area. Competition comes from Lutheran General and Good Shepherd, which are part of the Advocate Health Care Network, and Alexian Brothers Medical Center and St. Alexius Medical Center, which are affiliated.
Moody's Investors Service rates Northwest Community Hospital Aa3.
The authority board also gave final approval to DeKalb-based KishHealth System's plans to borrow up to $71.5 million to refund its auction-rate securities. The system is still considering whether to issue fixed or floating-rate securities. The system is rated A-minus by Standard & Poor's. JPMorgan is the underwriter and Jones Day is bond counsel.
Norwegian American Hospital in Chicago received the go-ahead for its plan to borrow up to $24.5 million through a private placement. The proceeds would finance various renovation projects involving its outpatient imaging center, a women's center and sprinkler and fire alarm upgrades required by regulators. A small piece will also refund debt sold in 2005. Raymond James & Associates Inc. is the private placement agent and Jones Day is bond counsel.
OSF Healthcare System in Peoria received clearance to borrow $16 million in commercial paper notes to finance construction of a medical office building. JPMorgan is the underwriter and Chapman and Cutler LLP is bond counsel. Anne Donahoe is serving as financial adviser to OSF. The Northern Trust Co. would provide a letter of credit for the notes.
Bethany Methodist's North Suburban Campus in Morton Grove received preliminary approval to borrow up to $40 million to refund a 2002 issue and to fund new projects. They include the renovation of Bethany Terrace Nursing Centre and conversion of a portion of it to an assisted living facility that would be known as Bethany Gardens. Oppenheimer & Co. is the underwriter and Jones Day is bond counsel.
The authority also approved several bond issues for higher education facilities, including up to $22 million for Naperville-based North Central College and $7 million for Lake Forest College. North Central would use proceeds to finance a new campus residence and recreation center while Lake Forest would finance an expansion of its sports facility.
The board also approved another $48 million of financings planned by a handful of community and cultural institutions. They include $3.5 million for the Lyric Opera of Chicago that would use its proceeds to purchase two spaces in its building to operate dining facilities, $30 million for the Chicago Horticultural Society, and $6.5 million for the New Hope Center Inc.
The Horticultural Society, which operates the Chicago Botanic Garden in north suburban Glencoe, plans to construct and equip a new plant conservation center with the bond proceeds. The 385-acre site is among the most popular gardens nationally.
William Blair & Co. is serving as the placement agent on the variable rate bonds that would be backed by a direct pay letter of credit from JPMorgan Chase Bank NA. The bonds, secured by a first mortgage on the financed property, would be structured with a bullet maturity in 2038.
The authority also announced that executive director Kym Hubbard would leave the agency this month to return to the private sector. She stepped into the position about 14 months ago replacing interim director Jill Rendleman. Gov. Rod Blagojevich has not yet recommended a replacement.