DALLAS Integris Health Group earned net present value savings of $11.3 million or 5.8% on a $200 million revenue refunding bond issue through the Oklahoma Development Finance Authority that priced March 17.
The healthcare system plans to issue $48.4 million of variable-rate refunding bonds as Series B in the next two weeks, according to financial advisor Robert Turner, senior vice president at Kaufman Hall.
Series A bonds were oversubscribed in every maturity but two, with $1.1 billion of orders, Turner said.
“The market had a good tone and we got good investor interest,” Turner said. “We got a good order flow from a lot of accounts.”
Maturities of 2038 with 4% coupons earned a yield of 4.03%. The bonds are callable in 2025.
David Gallin, vice president for book-runner Morgan Stanley, was lead banker on the Series A bonds.
The bonds carried ratings of Aa3 from Moody’s Investors Service and AA-minus from Standard & Poor’s with stable outlooks.
The Series 2015B bonds will be multi-modal variable-rate demand bonds that may bear interest at several different modes including daily and weekly rates, according to Moody’s. Initially the bonds will be issued in Window Rate mode. In the case of a failed remarketing, all Window Rate bonds would be subject to mandatory tender on last day of the 210-day Mandatory Purchase Window.
Total bond proceeds will refund series 2008B, 2008C, and 2007A-3 bonds. Integris will also issue unrated $92 million of series 2015C revenue refunding bonds that will be directly placed with Union Bank for an initial term of 15 years. Those bond proceeds will refund series 2011A and 2011B bonds.
“In close conjunction with this overall plan of finance, Integris plans to update and modernize the master trust indenture in minor ways,” Standard & Poor’s analyst J. Kevin Holloran said.
Proceeds of the new 2015C bonds will refund unrated direct placements, including $44.8 million of series 2011A and $45.1 million of 2011B bonds with Wells Fargo.
Integris also has direct placements of $96.2 million with BMO Harris Investment Corp.
Turner said the debt structure is designed to provide “the lowest capital cost with the appropriate risk profile.”
About 55% of the health system’s debt is in variable-rate modes, including a mix of bank direct purchases and variable-rate demand bonds.
“Incorporating the current refunding, Integris will maintain the same proportion of variable-rate debt, but will reduce capital structure risk by eliminating all variable-rate demand bonds with regular tender features,” said Moody’s analyst Kimberly Tuby. All of Integris’ variable-rate debt is swapped to fixed rates.
The largest Oklahoma-based healthcare provider, Integris has seen declines in inpatient admissions and a shift of patient care to outpatient settings, similar to other hospitals, Tuby said.
On March 1, Integris sold its minority interest in five joint venture hospitals to the for-profit Community Health Systems based in Tennessee. Integris reported that the hospitals typically depressed annual joint venture revenue by about $1-2 million per year.
Integris’s flagship Baptist Medical Center in Oklahoma City and its five satellite hospitals have about $432 million in long-term revenue bonds outstanding, according to S&P.