The New Jersey Health Care Facilities Financing Authority today will price nearly $250 million of state contract bonds to help support Catholic Health East's buyout of three Newark hospitals, a move that will help eliminate the area's number of vacant hospital beds.
The transaction will enable Pennsylvania-based Catholic Health East to take over Saint Michael's Medical Center from Cathedral Healthcare System and pay down roughly $144 million of its outstanding debt.
The medical center consists of Saint Michael's Hospital, Saint James Hospital, and Columbus Hospital. In order to gain the state's appropriation backing on the Series 2008A bonds, Saint James and Columbus ended their inpatient-care services in March and June, respectively, thereby decreasing Newark's number of vacant hospital beds.
Morgan Stanley will price the debt backed by state appropriation. McManimon & Scotland LLC is bond counsel. Assured Guaranty Corp. will provide insurance on the debt, according to Randy Schultz, vice president for capital strategy and management at Catholic Health.
Moody's Investors Service rates the deal A1. Fitch Ratings and Standard & Poor's rate the transaction A-plus and AA-minus, respectively.
The NJHCFFA approved the bond sale in late April with a tentative June pricing date, yet state officials were busy closing the books on fiscal 2008, which ended June 30 and decided to postpone the deal until the start of fiscal 2009.
"It was a little too close to the year-end budget for the state of New Jersey and you know there's a lot of activity at the end of a fiscal year, as they're trying to get the new budget approved," Schultz said. "And there were issues that we were still trying to tie up. We were 99% complete, but it just got too close to the fiscal year end and of course the state has to update this big preliminary official statement, so it was mutually decided that we would just defer a month."
The Series 2008A fixed-rate bonds comprise both serials maturing annually through 2028 and two term bonds, one for $54.6 million maturing in 2033 and another for $70.2 million maturing in 2038, according to the preliminary official statement. There are no swap agreements attached to the transaction.
Bond proceeds will defease Columbus Series 1991A for $25.5 million, CHS Series 1998 for $54 million, CHS Series 2002A for $61.8 million, CHS Series 2002B for $249,390, and DHS Series 2002C for $3.26 million. The remaining funds will help finance expansion and renovation projects at Saint Michael's to allow for additional acute-care business at the facility.
The three locations are located in Newark. The Columbus campus is less than three miles north of Saint Michael's while the Saint James campus is less than two miles south of Saint Michaels.
The bond sale qualified for the state's Hospital Asset Transformation Program as the transaction will decrease the number of unused hospital beds in the area. In return, the state extends its appropriation pledge on the $250 million of debt.
The 2000 HATP law allows the NJHCFFA to refinance outstanding private nonprofit hospital debt with state-appropriation bonds if a provider is ceasing its acute-care operations. The authority had issued state-appropriation debt before, but only with state-owned health care facilities.
A New Jersey Commission on Rationalizing Health Care Resources report released in January detailed the state's over-abundance of hospital beds, and named Newark in particular as one area that had excess beds.
"The analysis revealed that the state currently faces an oversupply of hospital beds that is manifest in every market area of the state, but most pronounced in the Hackensack, Ridgewood, and Paterson and the Newark/Jersey City market areas," according to the report.
This is the state's second HATP deal. The authority sold $45.4 million of debt in March 2007 on behalf of St. Mary's Hospital in Passaic County, with roughly $30 million of the bonds backed by New Jersey's appropriation pledge, as that amount paid down outstanding St. Mary's debt and bonds that St. Mary's acquired from PBI Regional Medical Center in its takeover.
NJHCFFA officials may issue another HATP bond transaction by the end of 2008 with Goldman Sachs & Co. as underwriter, if the state approves the deal. Solaris Health System has requested $160 million to help take over Muhlenberg Regional Medical Center. The hospital is waiting to receive closure approval from the state health planning board. Once Solaris and Muhlenberg have the authorization to end the latter's inpatient services, state Treasury officials and NJHCFFA's board will evaluate the plan.
State appropriation debt sold within New Jersey's HATP is not subject to voter approval. In November, voters will weigh in on a constitutional amendment that would require all non-revenue debt backed by the state - including bonds sold through state authorities and agencies like the NJHCFFA - to go to referendum.
As the HATP law pre-dates the potential change to New Jersey's constitution, the NJHCFFA will continue to issue HATP state contract bonds without voter approval, regardless of the results of November's ballot question. New Jersey has $32 billion of outstanding debt.