CHICAGO — The Mayo Clinic took retail orders Tuesday on $200 million of revenue bonds and will open the sale to institutional buyers Wednesday as it finances various capital projects, including a new proton beam therapy center at its flagship campus in Rochester, Minn.
The bonds are selling through Rochester, with a fixed-rate structure and final maturity in 2041.
Wells Fargo Securities and Bank of America Merrill Lynch are senior managers, with Wells Fargo running the books, according to Mayo’s manager of treasury services, Rick Haeflinger.
Ahead of the sale, Moody’s Investors Service affirmed Mayo’s Aa2 rating and Standard & Poor’s affirmed its AA. Both assign stable outlooks.
With the current issue, the system will have $1.9 billion of debt.
The system announced earlier this year its intention to spend $700 million annually over the next five years on improvements to current facilities and the construction of new ones, including two proton therapy centers.
The clinic anticipates issuing between $400 million and $500 million of new debt over the next three to four years to support the program, though that could change, Haeflinger said. He expects to return to the market next spring.
Capital plans include ongoing and new projects, expansion of the emergency department at Saint Mary’s Hospital in Rochester, and improvements at other system sites.
The clinic is building two proton therapy centers, one at its main campus and another at its Arizona facility. The system also has a Florida campus.
“Proceeds from this issue will help fund the center in Rochester with proceeds from a sale next year going to help fund the other center,” Haeflinger said.
Unlike radiation therapy, in which 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.
Other projects include the development of three new centers: the Center for Regenerative Medicine, the Center for Individualized Medicine and the Center for the Science of Health Care Delivery.
The system treated 1 million patients and generated annual revenues of $8.5 billion in fiscal 2011. It closed out the year with $610 million of net operating income for a more than 7% margin, up from $515 million in 2010. Patient volume remained steady and the system received $318 million from benefactors and others.
The clinic increased its planned pension contribution in 2011 as it seeks to improve the fund’s condition.
The Mayo system’s credit profile benefits from its strong national brand and unique position as the nation’s largest multi-specialty group practice, with a world-renowned clinical and research reputation, analysts noted.
In its rating review, Standard & Poor’s said the clinic continues to see strong operations since it raised the rating one notch last April, but that trend could slow.
“Management does not expect future performance to continue at the 2011 level, due to expected lower federal research funding, the unusually strong fundraising results in 2011, and investments the health care system is making in its clinical practices, which are expected to be a short-term drag on operational performance,” according to S&P.
Mayo’s challenges include exposure to possible reductions in Medicare, large research and education missions that rely on fundraising and investment returns for support, and high exposure to equities from its investment portfolio.
“The stable outlook reflects our belief that Mayo will continue to generate operating margins that will support healthy debt-service coverage and provide for capital investment in the future,” Moody’s analysts said.