CHICAGO — Kansas City, Mo.-based Children’s Mercy Hospital enters the market beginning today with a retail order period on its $180.7 million of new-money and refunding revenue bonds that will introduce fixed-rate bonds to the well-known hospital’s debt portfolio.
The Missouri Health and Educational Facilities Authority is acting as the conduit issuer. Piper Jaffray & Co. is senior manager and Loop Capital Markets LLC and UMB Bank NA are co-managers. Kaufman Hall & Associates Inc. is financial adviser and Gilmore & Bell PC is bond counsel.
The A-plus rated CMH will open up the sale to institutional buyers tomorrow. About $80 million of the deal is new money that will finance various capital projects, including a portion of the cost of a new six-story tower at its main Kansas City campus.
The remaining $100 million will refund a bank syndicate loan from Commerce Bank NA that the health care provider took out in April 2008 following the collapse of the auction-rate securities market to pay off a chunk of its ARS.
The move eased pressure on the hospital to move quickly on a restructuring plan on all of its ARS.
The hospital had another $80 million of ARS that it refunded last year with variable-rate bonds backed by a letter of credit from UBS AG. Those bonds are rated AAA/A-1 by Standard & Poor’s based on both UBS and Children’s underlying ratings.
“The bank loan really provided a safe haven for the hospital that allowed it to wait for the market to improve before restructuring the rest of its auction-rate securities and to enter the market at the same time with the new money,” said Piper Jaffray public finance banker Steve Proeschel.
The hospital’s timing was also driven by its intention to wait to enter the market until its latest fiscal audit was completed.
Though single-A rated health care credits struggled earlier in the year with market access, and credit spreads remain volatile, the market has sharply improved, participants said.
Proeschel said the hospital’s strong reputation should also help lure buyers as well as its first-time use of a fixed-rate structure.
“We expect good retail participation because of its local and national reputation and from institutions looking to own a new name,” he said. Children’s only other debt is its $80 million of variable-rate debt.
Ahead of the sale, Standard & Poor’s affirmed the hospital’s long-term A-plus rating and stable outlook.
“The rating is based on CMH’s strong business position as the dominant children’s hospital in the Kansas City area, as well as its trend of strong operating performance,” wrote analyst Kenneth Gacka.
In addition to its flagship 263-bed teaching hospital in Kansas City, CMH operates a 54-bed hospital in nearby Overland Park, Kan.
Its primary service area covers 18 counties, where it enjoys a 77% market share, with its secondary service area expanding its coverage to 68 counties in Missouri and Kansas.
The hospital — first established in 1897 with a single bed by two physicians who were sisters — serves as a teaching and research facility for the pediatrics program at the University of Missouri-Kansas City Medical School and provides access to more than 50 specialty areas.
Construction on the $68 million new tower is expected to start in March with a completion date in 2013. About $15 million of this week’s sale will help finance construction of an outpatient facility, Children’s Mercy East in Independence, Mo. Construction is set to begin in 2011.
The hospital — one of 49 freestanding children’s hospitals in the country — had 14,600 admissions in fiscal 2009, down 5% from a year earlier. It saw growth in admissions between 2005 and 2009 of 14%.