WASHINGTON The Maryland Health and Higher Education Facilities Authority is planning to refund approximately $182 million of revenue bonds to benefit MedStar Health the week of Jan. 21, according to a report by Fitch Ratings.
Bond proceeds will be used to advance refund $150 million of Series 2001A, 2001B, 2001C, and 2001D bonds, with $14.2 million devoted to help fund a debt service reserve fund. The remainder will go to pay costs of issuance and pay $15.7 million worth of negative arbitrage and accrued interest costs, Fitch said.
The bonds will sell through negotiation led by Citigroup Global Markets Inc. Bond counsel is Ballard Spahr Andrews & Ingersoll LLP. The 2001 series bonds are uninsured.
MedStar Health is a nonprofit health care system composed of three Washington, D.C.-area hospitals and four Baltimore-area hospitals. The system pulled in revenue totaling $2.2 billion in fiscal 2003, according to Fitch, which rates the bonds BBB.
The rating affirmation and stable outlook stem from MedStars improving financial performance in 2004, continued strong operating performance of MedStars Baltimore facilities, and management practices aimed at greater system efficiency, Fitch analyst John E. Wells wrote in the report.
Rate increases, combined with some cuts and the recent consolidation of some services at its Georgetown University Hospital have led to a financial improvement in fiscal 2004, Fitch said. The system hopes to cut costs further by consolidating certain business functions in the region into the central business office in Maryland.
The rating affirmation from Fitch comes after a similar affirmation last June and about a year and a half after MedStar Health agreed to pay the Internal Revenue Service $500,000 rather than restructuring its debt to settle the tax agencys audit of $583.5 million of bonds issued in 1998 to finance the acquisition of another health care system. The settlement made MedStar the first of several health care systems whose bonds were audited to reach a final agreement with the IRS.
Several other hospital systems entered into mergers involving the sale of tax-exempt debt and were similarly challenged by the IRS, which disputed whether the debt constituted a new-money issue or an advance refunding. An advance refunding would have exceeded the limit of one advance refunding per issue mandated by the tax law.
Fitch cautioned that although MedStar should be able to meet its projected bottom line gain of $2.6 million in fiscal 2004, last years budget losses make this year a crucial one for the systems credit rating.
The systems 2003 loss from operations of $29.8 million was well below its budget of $14 million and magnifies the significance of meeting its goals in 200, Fitch said. Any shortfall in MedStars 2004 budget could lead to negative rating pressure.
MedStars outstanding debt is rated BBB by Fitch and includes roughly $450 million of District of Columbia series 1998 and 2001 multimodal revenue bonds and $284 million in Series 1998 revenue bonds issued by the Maryland authority.
The authoritys Series 1998A bonds carry an underlying rating of Baa2 from Moodys Investors Service, and are rated BBB with a negative outlook by Standard & Poors.
