CHICAGO — Rochester, Minn.-based Mayo Clinic will enter the market Wednesday and shift $290 million of variable-rate securities to a fixed-rate structure to open up room in its debt portfolio for future floating-rate debt that would finance two proton therapy centers.

Bank of America Merrill Lynch and Wells Fargo Securities are the underwriters, Morgan Keegan & Co. is financial adviser and Dorsey & Whitney LLP is bond counsel. Rochester is serving as conduit issuer for the prestigious medical system.

Ahead of the sale, Moody's Investors Service affirmed the Aa2 rating assigned to $1.7 billion of Mayo Clinic debt and Standard & Poor's affirmed its equivalent AA rating.

The deal will refund variable-rate debt sold in 1992 and in 2001. Because Mayo finds little appeal in current long-term interest rates, the bonds will include a mandatory tender in 10 years. Mayo Clinic treasurer Harry Hoffman said the system hopes to shave 1% off the interest rate by including the feature.

After the refunding, Mayo's debt structure will include a mix of 65% fixed and 35% floating-rate bonds.

"We see significant financing activity needs over the next several years and want to open up capacity in our debt portfolio to have the flexibility to use floating-rate bonds depending on interest rates," Hoffman said.

Mayo Clinic officials anticipate issuing up to $500 million of new-money debt over the next three years to finance projects, with the majority going to the construction of two proton therapy centers, one at its main Rochester campus and the second at its Arizona facility. Mayo also operates a Florida campus.

"It's a very important form of cancer treatment that is more effective for certain tumors, and we believe in comprehensive integrated care," Hoffman said of Mayo's pursuit of the projects. While most existing proton facilities were built through off-balance sheet, nonprofit partnerships or by for-profit providers, Hoffman said the clinic is financing its projects as a means to maintain full ownership and control.

Unlike radiation therapy, where the dosage is complicated by a need to kill cancer cells without damaging healthy tissue, proton therapy uses protons generated through an acceleration process with magnets steering the proton beam to allow for a more precise targeting of cancer cells.

Proton therapy is considered especially beneficial in treating brain and spinal cord tumors, bone and soft-tissue sarcomas, lung cancer, gastrointestinal cancer, head and neck cancers, eye tumors, pediatric cancer, prostate cancer, and advanced breast cancer.

Once considered too expensive and experimental, more hospital systems across the country now believe such therapy is an essential service. The number of centers has grown steadily over the last decade; nine centers are open nationally with a handful under construction. At an estimated cost of between $125 million and $200 million, they remain expensive to build and several projects have been put on hold.

The Loma Linda University Medical Center in California offered the first hospital-based proton center in the 1990s.

The Mayo Clinic's ratings are supported by its strong financial performance and international clinical reputation. Mayo operates the nation's oldest and largest physicians network with 2,000 doctors and scientists at its Rochester headquarters.

"These attributes are offset by Mayo's extensive support incurred for the research and teaching missions, which is typical of large academic medical centers," Moody's wrote. "While improved, balance sheet indicators are somewhat modest compared to similarly rated peers."

The clinic struggled through a challenging fiscal 2008 during which it saw a significant $1.7 billion decline in unrestricted net assets and reduced cash flow that hurt debt-service coverage ratios. It also faced increased pension contributions and was strained by capital projects.

The management team responded quickly, scaling back capital spending, cutting expenses and launching a multi-year transformation plan aimed at improving patient access and affordability, to position Mayo as a lower-cost provider under health care reform.

The clinic turned around its finances in fiscal 2009 and it saw continued improvements in 2010. Favorable results are expected in fiscal 2011 despite some erosion. Mayo recorded 123,000 admissions in fiscal 2010, generating $7.8 billion of revenue. The system is also planning a private placement with Wells Fargo later this year, consisting of $250 million of taxable debt with a final maturity in 2016 related to pension funding.

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