CHICAGO — The Indiana Finance Authority today is expected to price $225 million of new-money revenue bonds on behalf of Sisters of St. Francis Health Services Inc.
Proceeds from the bond sale will reimburse the system for capital costs spent as part of its ongoing five-year, $1.16 billion capital plan.
Despite operating in an increasingly competitive market and some internal fiscal challenges, such as an unfunded pension liability, the double-A rated St. Francis continues to maintain a solid operating profile.
The system operates 12 facilities located largely between Chicago and Indianapolis, where most of its hospitals enjoy a strong market share. For three straight years, St. Francis has produced operating cash flow margins that exceed 11%, resulting in “solid bondholder security” and debt-service coverage of 5.1 times, according to Moody’s Investors Service.
Moody’s rates the system’s debt Aa3 with a stable outlook and Fitch Ratings rates the bonds AA with a stable outlook.
The current bond issue is part of a capital plan that is expected to total $1.16 billion in spending through 2013. Like most health care issuers, St. Francis suffered investment losses last year amid the market collapse. It reacted in part by delaying a number of projects, according to Moody’s.
But capital plans are back on track, and the system plans to spend $233.4 million each year over the next five years. The money will come from internal cash and from borrowing. The plan is “substantial, albeit manageable,” Moody’s analyst Beth Wexler said in a release.
The upcoming $225 million bond issue includes $77.1 million of term bonds maturing in 2039 and $147.9 million of term bonds maturing in 2048. The bonds are secured by a pledge of the parent corporation, which includes 96% of the system’s revenues and 95% of its assets.
Merrill Lynch & Co. and Morgan Stanley are underwriting the deal. Ice Miller LLP is bond counsel.
After the sale, St. Francis will have nearly $1.2 billion of outstanding debt, including $449 million of variable-rate debt that is hedged in a series of interest-rate swaps. As of Aug. 31, the system had posted $15.7 million in collateral payments to its swap counterparties, Merrill Lynch Capital Services and Citibank, according to bond documents.
Challenges include an unfunded pension liability of $181 million, and rising competition in some markets from other health care providers, including physicians’ groups and a new acute-care facility in Lafayette, Ind., Moody’s said.
“Responding to competitive overtures from hospitals and physicians in two of the system’s key markets, Indianapolis and Lafayette … remains a key credit concern,” Wexler wrote. “Both of these markets have been materially altered by entrepreneurial physicians who are demanding a share of more lucrative services.”