DALLAS — Memorial Hermann Health System in Houston is planning to issue more than $290 million of bonds for expansion of its growing network of hospitals and clinics.
The system's series A and B revenue bonds are expected to price May 28 in the amounts of $149.8 million and $71.1 million respectively. The series A will be fixed-rate, while Series B will be offered as floating-rate notes.
Those bonds, maturing serially through 2031, will price through negotiation with JPMorgan Securities, leading a syndicate with six other underwriters. Melio & Co. serves as financial advisor.
On June 11, the system will issue another $71 million of D and C series variable-rate demand bonds with self-liquidity.
The conduit issuer of the debt is the Harris County Cultural Education Facilities Finance Corp.
Proceeds will fund new capital projects, including expansion at the Katy, Sugarland and Pearland hospitals, and new construction at the Texas Medical Center. The bonds will also reimburse approximately $16 million of funds already spent on the projects.
The bonds carry ratings of A-plus from Standard & Poor's and A1 from Moody's Investors Service. Outlooks are stable.
"The A1 rating and stable outlook are attributable to a stable and leading market position for this sizable $3.58 billion revenue regional system operated by a well-seasoned management team," Moody's analysts Kay Sifferman?and Lisa Martin explained. "Operating cash flow margins continue in the double digit range generating good peak debt service coverage, although leverage ratios weaken with the Series 2014 bonds and when including sizable operating leases."
With more than $2 billion of debt outstanding, Memorial Hermann generated $3.58 billion in revenue in fiscal year 2013, according to Moody's.
Memorial Hermann plans $1.9 billion of construction projects over the next four years, including $650 million for its major hospital at the Texas Medical Center in Houston.
"The stable outlook reflects our anticipation that Memorial Hermann's financial performance will remain consistent given the system's excellent market position, geographic reach, and solid management team that has consistently met or exceeded budgeted projections," S&P analysts Kevin Holloran and Martin Arrick wrote in their ratings report.
"The outlook also reflects our anticipation of additional debt in the medium term, but the debt has not been factored into any ratios at this time," they added. "We are unlikely to raise the rating, but the rating could come under pressure should operations unexpectedly falter significantly or the balance sheet markedly deteriorate with unanticipated losses or future borrowing that exceeds what has been reported to us."
