CHICAGO - The Michigan State Hospital Finance Authority this week signed off on roughly $1.5 billion in bond sales even as the hospitals seeking debt indicated the timing of their transactions is uncertain amid the current market turmoil.

The approval comes as the state's hospital bond issuance has slowed to the extent that the authority has canceled its November meeting due to lack of agenda items, said executive director Thomas Letavis.

At its Wednesday meeting, the authority approved a measure by Novi-based Trinity Health to issue $1.2 billion, including $750 million of fixed-rate bonds and $425 million of variable-rate securities. One of the largest Catholic health care organizations in the U.S., Trinity would use the bonds to refinance a large swath of its tainted variable-rate debt and issue $100 million for new-money projects.

Though the authority approved up to $1.2 billion, Trinity is expected to issue just under $800 million, according to Letavis. "We gave them the larger amount because of the chaos in the market, so they have the flexibility to do more variable or more fixed if necessary," he said.

Trinity is currently planning to enter the market in mid-November but has postponed setting a certain pricing date as its finance team keeps an eye on the market.

"Right now is not a good time, and they're asking for the ability to look at the market and find the best time over the next few weeks," Letavis said. "The concern about postponing is simply the cost of putting everything back together again."

If Trinity does not enter the market before Jan. 31, 2009, it would be required to return to the authority for renewed permission.

The refunding would allow the system to shed its auction-rate debt as well as its insured variable-rate debt. As of February, amid the collapse of the auction-rate market, Trinity had roughly $600 million of outstanding auction-rate securities, about 28% of its overall $2.7 billion portfolio.

Trinity's current plan is to provide some of its own liquidity as well as secure additional lines of credit.

Merrill Lynch & Co. is acting as underwriter on the planned transaction. Hawkins, Delafield & Wood LLP is bond counsel, and Kaufman Hall & Associates is financial adviser.

Trinity is rated in the double-A category by all three rating agencies.

Also Wednesday, the Hospital Finance Authority signed off on a plan by the Detroit Medical Center to sell up to $185 million of new money and up to $142 million of refunding bonds, Letavis said.

DMC had planned to enter the market next week but is likely to postpone the sale until it can achieve more attractive interest rates and an improved yield curve, as well as sufficient investor interest in below-investment-grade double-B rated bonds, according to an earlier interview with the medical center's chief financial, officer Jay Rising.

Merrill Lynch is senior book-runner on the transaction. Kaufman Hall is DMC's financial adviser, and Miller Canfield Paddock & Stone PLC is bond counsel.

Of the $340 million bond issue, roughly $140 million would refund outstanding fixed-rate debt. Another $85 million would be used to reimburse the hospital system's cash budget and build its liquidity, and another $80 million would finance a series of new capital projects at the system's Detroit campus. Among the new projects is a new pediatric outpatient center at DMC-Children's Hospital of Michigan.

 

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