NYU Hospitals Center Preps $250M for Projects

The New York University Hospitals Center is set to sell $250 million of taxable bonds sometime this week — possibly as early as Tuesday — to help finance the first phase of its campus transformation project.

Originally scheduled for last week, the sale was held up by additional administrative filings, according to Deborah Bohren, vice president for communications and public affairs.

JPMorgan is the lead underwriter.

The NYU Hospitals Center, a component of the NYU Langone Medical Center, is an academic medical teaching hospital in New York with two main campuses — the Tisch Hospital and the Rusk Institute of Rehabilitation Medicine.

Proceeds from the sale will go toward repaying an outstanding line of credit, funding working capital, and financing various projects under its campus reformation plan, including the relocation of buildings to make way for the new Helen L. and Martin S. Kimmel Pavilion.

"It's pre-Kimmel, in a sense," said Bohren. "Kimmel is going to go where Rusk now stands." Rusk is located on 34th Street, on the east side of Manhattan.

To transfer some of the services from the Rusk Institution, the center will be renovating several floors in the Hospital for Joint Diseases to accommodate inpatient rehabilitation, renovating space at an ambulatory care center and building an energy building, Bohren said.

The campus reformation project, estimated to cost between $1.5 billion and $2 billion total, is a plan to reorganize and optimize the Medical Center's resources and better integrate patient care, research, and education.

"It's an older infrastructure and we're landlocked. So we have to make room for new space by moving, changing and renovating existing space," Bohren said.

Under the reformation project, the new Kimmel Pavilion will connect directly to a fully refurbished Tisch Hospital, which will consolidate NYU Langone's resources for acute clinical care.

Funding for the Kimmel Pavilion will come from $313 million of equity, $580 million of philanthropy and $576 million of long-term debt, according to a report from Standard & Poor's.

This bond issue represents the first permanent financing for Kimmel-related projects, though projects for the campus transformation have been ongoing for the past several years. Bohren said other projects were much smaller and had different funding streams.

The remainder of the debt is scheduled in tranches throughout the construction period to repay short-term construction borrowings periodically.

Kimmel is planned to open in 2017, after which the next phase in the Tisch refurbishment will begin.

Standard & Poor's has upgraded the center's rating to A-minus from BBB-plus, citing the strong business position and positive relationships with New York University and the NYU School of Medicine.

"Furthermore, management's decision to issue debt in phases provides more flexibility to deal with unanticipated events during the construction period," analysts wrote.

Fitch Ratings also assigned an A-minus, upgraded from BBB-plus in December, and cited the center's strong operating performance and maintained patient volume growth.

Moody's Investors Service assigned an equivalent A3, citing a sustained operating momentum that translates into substantial operating cash flow and above-average operating metrics.

But, analysts warned, the center's "sizeable strategic plans" for the campus transformation will require significant cash flow and additional borrowings, carry incremental costs, and potentially distract management's focus.

The term bonds will be issued at par and will be subject to redemption.

Ropes & Gray LLP is bond counsel for the center and Edwards Wildman Palmer LLP is representing the underwriters.

The Yuba Group LLC is financial advisor.

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Higher education bonds Healthcare industry New York
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