BRADENTON, Fla. — The Owensboro Medical Health System in Kentucky this week is expected to price $545 million of fixed-rate revenue and refunding bonds as part of a finance plan to build a new hospital and terminate two swaps.

The bonds are being issued on behalf of OMHS by the Kentucky Economic Development Finance Authority and structured as $474.8 million of Series 2010A bonds and $70.1 million of refunding Series 2010B bonds. The debt is expected to sell with serial and term bonds with final maturity in 2046, according to various bond documents.

The proceeds of the Series A bonds will be used to finance and equip a new nine-story, 477-bed acute care replacement hospital, related service buildings, a central energy plant, and a 2,700-space parking lot in Owensboro. The third-largest city in Kentucky, Owensboro is located along the southern banks of the Ohio River 109 miles southwest of Louisville.

OMHS will use the Series B bonds, along with an equity contribution, to refund $152 million of Series 2001A, B, and C auction-rate securities issued on behalf of the hospital by the city, and to pay a fee estimated at $20 million to terminate two related swaps with Citi.

The hospital’s chief financial officer could not be reached for comment, nor could members of the finance team.

The bonds are rated BBB-plus by Fitch Ratings and Baa2 by Moody’s Investors Service, both with stable outlooks.

“The stable outlook reflects our belief that OMHS will continue to generate good cash flow to meet its debt-service requirements while maintaining its strong market presence and good liquidity,” said a report by Moody’s analyst Kay Sifferman.

Sifferman said the hospital’s credit strengths include the fact that it is a full-service sole provider in Daviess County with a dominant and stable 90% market share. OMHS services 10 counties in its secondary area and its nearest competition is 31 miles away.

The system has a history of good operating cash-flow margins exceeding 10% in five of the past seven years, reaching 11.7% in fiscal 2009 and forecasted to be over 10% in the next five years, Sifferman said.

The hospital also has good liquidity, with 260 days’ cash on hand in fiscal 2009. But pro forma liquidity drops materially with cash defeasance of outstanding bonds, Sifferman noted, adding that a new management team has developed strategies resulting in growth that is driving operational improvement.

OMHS faces challenges, she wrote, including a sizable debt load with the current financing and a pension plan funded at 60%.

Fitch’s rating also reflected the system’s substantial pro forma debt, which is tempered by solid operating profitability and a dominant market share, said a report by analyst Emily Wadhwani.

“Overall, OMHS’ position as a sole community hospital will help to generate stable revenues and solid profitability through the construction period, offsetting some risks associated with increased expenses as the new hospital comes on line in 2013,” she wrote.

The new hospital is being built on 147 acres. Groundbreaking is expected to take place in March with a projected opening in 2013.

Kaufman Hall & Associates is financial adviser for the offering. Bank of America Merrill Lynch and JPMorgan are the underwriters. Jones Day is bond counsel and Alston & Bird LLP is underwriters’ counsel.

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