CHICAGO — The Rochester, Minn.-based Mayo Clinic plans to enter the market this spring to borrow roughly $200 million of new money for projects as part of the clinic’s plans to spend $700 million annually on capital improvements over the next five years.
Bank of America Merrill Lynch and Wells Fargo Securities would be underwriters on the transaction, which is planned for the next two months, said Mayo manager of treasury services Rick Haeflinger. Rochester is the conduit issuer.
The prestigious hospital late last week announced its latest financial results and plans to spend $700 million annually over the next five years on improvements to current facilities and for new facilities, including two proton therapy centers.
“Right now, we are anticipating issuing between $400 million and $500 million of over the next three to four years” for the program, “but that can always change,” Haeflinger said.
The clinic’s capital plans include ongoing and new projects, including its proton beam therapy program, expansion of the emergency department at Saint Mary’s Hospital in Rochester, and improvements at other Mayo Clinic Health System sites. The clinic is building two proton therapy centers, one at its main Rochester campus and the second at its Arizona facility. The system also has a Florida campus.
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, according to a statement.
The system reported last week that in fiscal 2011 it treated 1 million patients and generated annual revenues of $8.5 billion. It closed out the year with $610 million of net operating income for a more than 7% margin, up from $515 million in 2010 when it saw $7.9 billion in revenues.
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.
Mayo’s mid-double-A ratings on $1.7 billion of debt were affirmed last spring by Moody’s Investors Service and Standard & Poor’s. The ratings are supported by the system’s 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 in its report last year. “While improved, balance-sheet indicators are somewhat modest compared to similarly rated peers.”
The clinic struggled through fiscal 2008, during which it saw a $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.
Management responded quickly, scaling back capital spending, cutting expenses, and launching a multi-year transformation plan aimed at improving patient access and affordability.
