CHICAGO — Dayton, Ohio-based MedAmerica Health Systems will begin taking retail orders Wednesday on $100 million of fixed-rate bonds followed by institutional sales Thursday.
The provider expects to follow that transaction with $85 million of variable-rate bonds in a few weeks. Proceeds from both deals will be used to reimburse Med-
America for cash it spent building a $135 million heart and orthopedic patient tower at Miami Valley Hospital, its flagship facility located in downtown Dayton.
Barclays Capital and Wells Fargo Securities are managing both bond sales.
A standby bond purchase agreement from JPMorgan Chase will support the variable-rate debt, and the hospital finance team has decided to maintain a series of floating-to-fixed-rate swaps that hedge the bonds.
The system also plans to pay off $85 million of outstanding 1998 variable-rate demand bonds on April 1, and substitute the self-liquidity supporting $56 million of debt with a pair of standby bond purchase agreements in an effort to free up liquidity and take advantage of bank-support fees that have dropped since the late 2008 credit crisis.
At a time when many health care providers are opting for the safety of fixed-rate debt, MedAmerica has decided to keep about a quarter of its $420 million debt portfolio in a hedged variable-rate mode.
“We’re a strong credit,” said Tom Duncan, chief financial officer for Premier Health Partners, a joint partnership with MedAmerica and three other entities.
Fitch Ratings rates MedAmerica AA-minus and Moody’s Investors Service rates it Aa3, both stable outlooks.
“The stronger the credit, the less the hassle,” Duncan said. “We still have more risk, but there’s also a better reward by being able to access variable rate.”
MedAmerica expects to maintain the three swaps, with Bank of America Merrill Lynch as counterparty, that hedge $138 million of its variable-rate debt.
But Duncan said officials are considering restructuring the swaps so that they will pay a fixed rate and receive a rate based on a percentage of the one-month London Interbank Offered Rate as opposed to 67% of the five-year Libor as they do now. “It would make sense for us to take advantage of the steep yield curve right now,” Duncan said.
The new patient tower opened in December, and the upcoming new-money sales are likely to be MedAmerica’s last for some time. Analysts praise the provider for its strong operating profitability and leading market share in the Dayton area. Its membership in Premier Health Partners is also considered a credit strength, Fitch said in a report on the bond sale.
The system faces a few challenges. While it has a leading market share, it faces competition, most notably from Kettering Health Network. Its pension plan is underfunded and Medicaid payors accounted for 19.2% of gross 2010 revenue. That puts the hospital at risk if Ohio, suffering from its own fiscal stress, decides to decrease future Medicaid payments.
