CHICAGO – The Mayo Clinic is returning the market Tuesday with a $200 million refunding, a follow up to its $350 million taxable new-money issue in March.
The clinic will use floating rate debt to refund callable 2006 debt.
Wells Fargo Securities is remarketing agent on the $125 million portion of the deal structured in commercial paper mode and being sold through the city of Jacksonville, Fla. The other $75 million is structured as variable-rate demand bonds that will be remarketed weekly by Bank of America Merrill Lynch. Rochester, Minn., where Mayo is based, is the conduit issuer.
"We expect significant savings," said Mayo's manager of treasury services, Rick Haeflinger. The current bonds pay a 5% coupon.
Proceeds of March's fixed-rate taxable issuance are being used to fund various projects planned by the system which also operates campuses in Florida and Arizona.
The healthcare system paid a 4.128% yield on the bonds that matured between 2047 and 2052, Haeflinger said.
The new money tranche that sold in March followed the clinic's use of a taxable structure in public offerings in 2012 and 2013 and prior private placements.
"It's easier to issue as you don't have to use a conduit and you don't have all the regulations. Also, the rates are not that different especially on the long end," Haeflinger said the clinic's recent preference.
Ahead of the sales, Moody's Investors Service and Standard & Poor's affirmed the clinic's respective Aa2 and AA long-term ratings. The clinic carries top short-term ratings from Standard & Poor's and provides its own liquidity behind its floating-rate securities.
"The long-term rating on the Mayo Clinic reflects an excellent enterprise profile as one of the country's leading health systems, with a diverse group of operating assets," said analyst Martin Arrick. "The stable outlook reflects our view that Mayo Clinic's sound financial profile is sustainable over the two-year outlook period."
S&P has some concerns over certain financial characteristics, including leverage, unrestricted reserves, and non-operating income which it described as volatile.
"We believe that rating stability over time depends, in part, on Mayo Clinic continuing to steadily improve its balance sheet in order to generate a greater cushion for periods of volatility, such as heightened uncertainty in the health care industry or when investment market returns are down," S&P said.
The stable outlook also assumes no near- or medium-term new money issuance. Haeflinger said the clinic shouldn't generate concerns on that front as it has no additional borrowing plans on the horizon.
Moody's said Mayo's rating reflects its "large size, demonstrated national and international draw for patients leading to geographic diversity of revenues and strong fundraising ability" while "challenges include support of research and education activities that suppress adjusted margins and somewhat modest pro forma debt coverage metrics."
Raymond James & Associates Inc. is advising the clinic and Dorsey & Whitney LLP is bond counsel.