Summa Health System, one of the largest health care providers in Ohio, is set to enter the market Tuesday with $175 million of new-money bonds.
The borrowing might include an additional $24 million of refunding debt as well.
Proceeds from the new-money sale will allow Summa to repay part of a short-term bank line of credit used to acquire one of several facilities the system has purchased as part of its regional expansion.
Proceeds will also finance an expansion of the emergency department at the Summa Akron City Hospital, among other projects.
Ahead of the sale, credit analysts warned that the system’s outstanding debt coupled with the current borrowing could strain its balance sheet. Fitch Ratings downgraded its rating on Summa’s outstanding debt to BBB-plus from A-minus, and revised its outlook to stable at the lower rating from negative. Moody’s Investors Service rated the debt Baa1 with a negative outlook.
The six-hospital system is the leading health-care facility in Akron, Ohio and the largest employer in Summit County. Revenue in fiscal 2009 totaled $1.1 billion.
Summa’s outstanding debt will total around $450 million after next week’s borrowing.
The finance team plans a retail order period for Tuesday followed by the institutional pricing Wednesday. JPMorgan is senior manager and PNC Capital Markets is co-senior. Squire, Sanders & Dempsey LLP is bond counsel. Cavanagh, Hoyt & Associates is financial adviser.
The Ohio Higher Educational Facility Commission will issue the bonds on Summa’s behalf.
The debt will be divided into four tranches of term bonds that mature in five-year increments from 2025 to 2040.
Summa has spent the last several years extending its reach in Ohio, primarily through the acquisition of hospitals and by planning several joint ventures with physicians to build hospitals, according to Moody’s.
“The system is making progress on integrating these new affiliates following a period of rapid expansion, but to date operating margins remain modest,” Moody’s analyst Lisa Martin said in a report on the borrowing. “In the long term, if these strategies are successfully implemented and the system is able to achieve better margins, we believe Summa’s role as a major regional health care system with close ties to large physician groups will solidify and grow its leading market position.”
Like Moody’s, Fitch warned that the system’s growth strategy poses risks to its financial profile. Fitch’s downgrade of the system earlier this month, cited fiscal measures — including debt burden, liquidity, and operating margins — when dropping the system below the A category.
“While Fitch believes the system’s rapid growth heralds future strength, its new scale demands more robust operating metrics in order to offset its balance-sheet standing,” analyst Anthony Houston wrote in a release.