CHICAGO – With its ratings intact, CoxHealth in Missouri enters the market next week with a mostly new-money sale of about $200 million to help finance a major expansion at its main acute care healthcare campus in Springfield.
The sale of fixed-rate bonds is slated for Wednesday, said the system’s chief financial officer Jake McWay. Bank of America Merrill Lynch is senior manager and Oppenheimer is a co-manager. Gilmore & Bell PC is bond counsel. The Missouri Health and Educational Facilities Authority is the conduit issuer.
Ahead of the sale, Fitch Ratings took the system’s A rating off negative watch and affirmed it. Moody’s Investors Service affirmed its A2 rating. The action impacts about $513 million of debt. Both agencies assign a stable outlook.
About $35 million of the sale will refund outstanding debt inherited by the system from its acquisition of a 167-bed hospital in Branson, Mo. Another $35 million will finance various improvements at that hospital and $115 million will go towards a new, nine-story patient tower at its Cox Medical Center South Campus in Springfield.
“This is a major expansion for us that allows us to move more toward private rooms,” McWay said. Cox operates three hospitals in Springfield and one in Branson along with 83 clinic sites. Its facilities generated $1 billion in operating revenue last year. The existing tower provides semi-private rooms and combined with the new facility, McWay said the system believes it’s well positioned to manage expected growth.
Fitch had placed the rating on negative watch in January due to the impending debt issuance and its impact on the system’s balance sheet. After a review, Fitch found the system could afford to take on the new debt given its stable operating performance and the Branson acquisition which bolstered its market share in its primary service area to nearly 50%. Maximum annual debt service will rise to $29.8 million from $22.9 million after the new issue.
Analysts also noted the improved edge the new facility provides Cox. “Fitch believes the project is strategically necessary, upgrading CoxHealth’s main campus to all private rooms. The new tower, the capital projects to be funded at Cox Branson with this debt issue, and the projects CoxHealth completed with its 2008 bond issue address most of CoxHealth’s major long-term capital needs, which will allow CoxHealth to grow into the debt over time,” they wrote.
As part of the acquisition of the Branson facility, formerly known as Skaggs Regional Medical Center, CoxHealth agreed to fund a total of $65 million in capital improvements there.
The A2 rating and stable outlook reflect “CoxHealth’s trend of profitability and our expectation that the system will maintain stable operating margins and improve balance sheet ratios in the coming years,” Moody’s wrote.
The system’s challenges include local competition from Mercy Springfield, operating margins that are below medians for an A2 rating, somewhat modest debt service coverage ratios for its rating level, underfunded pensions, and construction risks although the system has “a track record of completing major capital projects successfully,” Moody’s wrote.
In a positive, Fitch noted that the system would soon free up $5.6 million in annual cash flow as it wraps up payments under a five-year Department of Justice settlement stemming from CoxHealth’s self-reporting of Medicare billing errors.
