CHICAGO - Columbus-based Nationwide Children's Hospital will enter the market today with roughly $177 million of variable-rate revenue bonds, including $45 million of new money with the balance going to refund problematic variable- and auction-rate debt.

Today's deal is one of three transactions totaling about $290 million that the hospital has undertaken to help fund an $800 million capital campaign and at the same time get out of much of its insured floating-rate debt. Last week it sold $45 million of new-money fixed-rate revenue bonds.

Today's transaction will be divided into four series that will include $45 million in new-money variable-rate revenue bonds, as well as three series of variable-rate refunding revenue bonds. The three refunding series are backed by standby bond purchase agreements with JPMorgan Chase Bank NA. Nationwide is providing its own liquidity on the new-money piece.

JPMorgan and NatCity Investments Inc. are underwriters on the transaction, while Peck, Shaffer & Williams LLP is bond counsel.

Nationwide plans to price an additional $68 million in variable-rate refunding bonds in two weeks.

A one-hospital system that dominates the pediatric care market in Franklin County and several adjacent counties, Nationwide has enjoyed growing operating cash flow margins and market position for a number of years. Franklin County is serving as the conduit issuer for all of the transactions.

Moody's Investors Service assigned an Aa2/VMIG-1 rating to last week's deal, today's transactions, and to the system's outstanding debt.

The refunding issues will eliminate Nationwide's approximately $50 million of outstanding auction-rate bonds and its variable-rate debt, which is insured by Financial Guaranty Insurance Co. and Ambac Assurance Corp. FGIC is currently rated in the double-B to triple-B category, while Ambac holds triple-A and double-A ratings, and has a negative outlook.

"We considered all kinds of options, and determined that with an Aa2 underlying rating, our best option was to refinance and reissue on our own credit ratings," said Luke Brown, Nationwide's vice president and controller.

The new money will add to about $287 million of outstanding debt, of which about 74% is in a variable-rate mode. However, most of that debt is synthetically fixed - leaving the system with floating-rate exposure on about 14% of its debt portfolio, Brown said.

As part of last week's $45 million sale, the system amended a forward-starting floating to fixed-rate swap agreement with JPMorgan, whereby it terminated half of the $90 million original swap because it opted instead to use a fixed-rate structure on that piece. Nationwide paid about $2.6 million in termination fees.

The refunding of its auction-rate debt comes after Nationwide spent the last few months purchasing its own ARS in order to bring down interest rates that had grown to as high as 15% following at least one failed auction.

Like many health care providers with auction-rate debt, Nationwide began to see failed auctions beginning in February. The system began in mid-March to bid on its own debt offering an interest rate equivalent to the Securities Industry and Financial Markets Association Municipal Swap Index rate plus 0.50%, said Brown. Of the system's $50 million auction-rate tranche, the system held $43.9 million as of late April.

Today's transactions were pushed back several days after Nationwide decided to switch to a new liquidity provider to provide the standby bond purchase agreements for the refunding issues. While National City had acted as the system's liquidity providers on previous issues, officials decided to go with JPMorgan Chase Bank in recent weeks due to a number of market factors, Brown said. NatCity is one of the banks hardest hit by fallout in the subprime mortgage market.

The $90 million in new money that will be raised by recent sales will allow the system to build a new clinical building and central energy plant, both to be located at the hospital's main Columbus campus.


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