CHICAGO - Missouri-based Mercy Health will price $355 million of revenue bonds Tuesday to cover the costs of various projects, including construction of a replacement hospital for one destroyed by the May 2011 Joplin, Mo. tornado.
The Missouri Health and Educational Facilities Authority is conduit issuer. Bank of America Merrill Lynch is the senior manager with Barclays, Edward Jones, and JPMorgan rounding out the syndicate. Gilmore & Bell PC is bond counsel and Ponder & Co. is advising the system.
In addition to the Joplin hospital and related facilities, other projects being financed include new facilities in St. Louis and improvements to Mercy hospitals in St. Louis and Springfield, Mo. and facilities in Oklahoma City and Arkansas.
The system operates more than 30 hospitals in four states that generate more than $4 billion in annual revenue.
The more than 40-year-old St. John's hospital in Joplin was wrecked by the May 22, 2011, EF5 tornado that ripped through the city. It claimed more than 161 lives, injured more than 1,000, and destroyed more than 8,000 homes and businesses in the city about 150 miles south of Kansas City. It was one of the deadliest tornados on record.
The system is slated to open its new $450 million St. John's Mercy Hospital in Joplin in March. The offering statement reports that the system has received a total of $730 million in insurance reimbursements related to the Joplin tornado. The hospital will benefit from a $60 million data center that provides fail-safe protection and power.
Ahead of the sale, two rating agencies revised the system's outlook to negative from stable after a tough operational year.
Moody's Investors Service affirmed Mercy's Aa3 rating on $870 million of rated debt and Standard & Poor's affirmed Mercy's AA-minus rating. Mercy has another $446 million of unrated privately placed debt with JPMorgan Chase, PNC, Bank of America, and Northern Trust.
"The outlook revision reflects our view of Mercy's operating losses in fiscal 2014, following a recent history of light operations, coupled with the opening of the new Joplin facility," said Standard & Poor's analyst Suzie Desai. "Although the new facility is a business positive, it could create additional pressure at a time when operations are weaker than what is typical for an 'AA-' rated credit."
Standard & Poor's said its rating reflects Mercy's historically low debt levels and robust maximum annual debt service coverage, improving unrestricted reserves, and strengthening business positions in key markets.
"The outlook has been revised to negative from stable reflecting Mercy's weaker operating margins in fiscal 2014 and considers the stress the new money debt places on pro forma debt coverage ratios," Moody's said.
When Mercy's total debt equivalents are counted, they strain some medians at the rating level.
Mercy's defined benefit pension plans are underfunded and it has operating leases with a debt equivalent of $468 million.
"Failure to improve the operating cash flow margin noticeably in fiscal year 2015 likely would result in a downgrade," Moody's wrote.