CHICAGO — The Iowa Board of Regents will take competitive bids Wednesday on $190 million of bonds that will more than double its health care system’s debt load as it finances a new children’s hospital.
The revenue bonds, which carry a final maturity in 2038, are special obligations of the board payable from hospital revenues. Springsted Inc. is financial adviser and Ahlers & Cooney PC is bond counsel.
Proceeds will finance the construction, improvements and equipping of a new children’s hospital being built by the University of Iowa Hospitals and Clinics on the university’s campus in Iowa City.
The board approved the $270 million, 11-story, 195-bed facility with eight operating rooms last year and it’s slated to open in 2016. The project is being financed through borrowing, revenues on hand and private gifts.
The system includes a 685-bed general hospital, a psychiatric hospital, the Center for Disabilities and Development, the children’s hospital, and a host of ambulatory care clinics operated on-site and at multiple sites throughout the state. The new children’s hospital is part of the system’s strategic master facilities plan.
Ahead of the sale, Standard & Poor’s affirmed its AA rating and stable outlook on the new debt and $150 million of outstanding bonds. “The rating reflects our view of the system’s very strong financial profile and debt service coverage, combined with its excellent business position,” said S&P analyst Karl Propst.
Moody’s Investors Service affirmed its Aa2 rating and stable outlook. The rating reflects the system’s continued good operating performance in fiscal 2012, although it’s slightly down from its peak in 2011.
It also benefits from good balance-sheet ratios, adequate pro forma debt-coverage ratios even with the significant boost in its total debt, and its “integral link” to the Aa1-rated University of Iowa. The credit’s strengths also include the system’s clinical reputation and unique market position as the only academic medical center in Iowa.
Its challenges include a material increase in planned capital spending of about $630 million over the next three years, the increase in its debt load, regional competition from facilities located in Cedar Rapids, Davenport and Iowa City, a highly unionized workforce, and high exposure to one commercial payer, Wellmark.