CHICAGO — Illinois-based OSF Healthcare System won an upgrade ahead of its September new money and refunding sale for $367 million in recognition of its improved financial performance.
Moody's Investors Service raised the system's $950 million of debt to A2 from A3 and assigned a stable outlook in a report Aug. 27. The upcoming issue will sell through the Illinois Finance Authority later in September.
"The A2 rating is based on OSF's large, multi-site system and expanding presence in several markets in northern and central Illinois, leading market positions in the largest markets, and strong and liquid investment position," Moody's wrote.
OSF's challenges include higher-than-average direct leverage, sizable indirect obligations, and strong competition in most markets.
The rating agency said it expects the system's operating cashflow margins will stabilize at levels achieved in fiscal 2014 and year-to-date given operating initiatives and strategic investments to support higher and more consistent margins. Capital spending plans are manageable, which should help investment levels and ease pressures on the system's balance sheet, Moody's added.
OSF Healthcare System operates eleven acute care hospitals and a multi-specialty physician group of close to 690 physicians. Ten of the system's hospitals are in Illinois. OSF also owns a small critical access hospital in the Upper Peninsula of Michigan. The system's largest hospital, OSF Saint Francis Medical Center, is in Peoria.
The bonds are backed by a security interest in the unrestricted receivables of the obligated group, which makes up most of the system. With the proposed financing, the OSF Multi-Specialty Group will be added to the obligated group.
Proceeds of the bonds refund 2007 and 2009 bonds, refinance a taxable term loan, provide $50 million to fund the system's pension plan, and provide approximately $145 million in funds for capital projects.