CHICAGO - Ohio's Promedica Health System Inc. is bringing $320 million of low double-A rated hospital bonds to market Thursday, a day after publishing a supplement to bond documents informing investors of a potential merger in the works.
Promedica, one of the leading health care systems in northwest Ohio, was forced to divest itself of a hospital earlier this year after the U.S. Supreme Court refused to hear the system's appeal to a lower court ruling blocking the merger. The system for years had been fighting a 2011 challenge by the Federal Trade Commission to a 2010 merger with a struggling hospital in suburban Toledo.
In the update to its bond offering documents, Promedica didn't provide the name of its latest potential acquisition. Officials said that the acquisition, if completed, may have a material effect on the financial results of Promedica. The deal could take six to 18 months to negotiate, according to the supplement.
The Toledo-based system has $2.6 billion in revenue and operates 12 hospitals across Ohio and Michigan. It also runs Paramount, a health insurance company, and the supplement to bond documents notes that Paramount has asked the Internal Revenue Service for tax-exempt status.
The bonds are secured by a gross revenue pledge from the group, which currently includes St. Luke's Hospital, the suburban Toledo provider that Promedica is being forced to divest. St. Luke's will withdraw from the group upon FTC approval, according to Moody's Investors Service.
Standard & Poor's assigned its AA rating to the bonds, while revising the outlook to negative from stable ahead of the deal.
"The outlook revision reflects our view of evolving market conditions and uncertainty about the impact of divestitures and affiliations at a time when Promedica's financial profile is slightly weak," said analyst Suzie Desai in a statement.
Moody's, which rates the bonds Aa3 with a stable outlook, said the rating reflects the system's size and market position, among other things.
"The Aa3 rating is based on ProMedica's large size and leading market position in a two-state region, strong liquidity, minimal debt structure risks and limited indirect debt obligations," Moody's said in a release on the deal. "The Aa3 rating incorporates competition from a sizable health system, modest operating cashflow margins and increased leverage to fund higher capital spending."
The rating could be downgraded if the system sees a "materially dilutive" acquisition or merger, Moody's added.
The system has $870 million of outstanding bonds.
The financing will raise money for various capital projects with $20 million being used to refund a 2010 direct placement. The deal features $270 million of taxable revenue bonds with a single bullet maturity in 2045. Another $50 million tranche of tax-exempt bonds will be issued through Lucas County, Ohio.
Barclays is the senior manager and Citi is co-senior. Fifth Third Securities and PNC Capital Markets LLC are also on the team. Chapman and Cutler LLP is bond counsel. Melio & Company LLC is financial advisor.