CHICAGO - William Beaumont Hospital plans to enter the market this week with $584 million of new-money and refunding revenue bonds, the first of three issues over the next several months.

This week's sale comes after all three rating agencies downgraded the three-campus system based in Royal Oak, Mich., a suburb of Detroit. The downgrades reflect weak financial performance as well as the significant increase in debt - more than 50% - that the system will take on after the upcoming borrowings, analysts said.

The deal consists of a mix of fixed-rate and term bonds that will include new money for various capital projects as well as refunding of outstanding debt issued since 2001. Proceeds will also be used to pay swap termination fees of up to $5 million, according to Moody's Investors Service. Members of the finance team did not return phone calls.

In reviewing the borrowing, Fitch Ratings, Standard & Poor's, and Moody's all downgraded the system. Fitch dropped it to A-plus from AA-minus, Standard & Poor's lowered it to A from AA-minus, and Moody's downgraded the credit to A1 from Aa3.

Standard & Poor's also warned that Beaumont's plan to issue another $175 million in 2009 could trigger another downgrade or outlook revision.

"The downgrade reflects declining trends in income from operations since 2006, a weak balance sheet for the rating level, and continued significant capital investment over the next five years," analyst Brian Williamson said in a report on the debt issue.

In addition to this week's deal, Beaumont plans to sell around $150 million of variable-rate demand bonds later this year in addition to the $175 million in early 2009.

The borrowing is part of the system's long-term plan to increase its market share in the competitive southeast Michigan market, where it now is the market leader. Beaumont will have roughly $900 million of outstanding debt after the 2008 debt issues, according to analysts.

The underwriting team on this week's issue consists of Morgan Stanley, Goldman, Sachs & Co., and Banc of America Securities LLC. Miller, Canfield, Paddock and Stone PLC is bond counsel to the obligated group. Illinois-based Kaufman Hall & Associates Inc. is Beaumont's financial adviser.

The Royal Oak Hospital Finance Authority is acting as conduit issuer.

Proceeds from both 2008 bond series will be used to refinance $419 million of debt issued from 2001 through 2006, including $341 million of auction-rate debt and $78 million of variable-rate demand bonds. Another $250 million will be used to finance capital projects across the system.

Proceeds will also fund between $3 million to $5 million in swap termination payments, according to Moody's analyst Lisa Goldstein.

The system has seven outstanding swaps, most of which were entered into between 1998 and 2006 with Morgan Stanley and Goldman Sachs. It's unclear how many swaps the system is terminating with the upcoming financing.

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