Despite a downgrade to Ba1 by Moody’s Investors Service, the Temple University Health System saw strong demand for $311 million of revenue and refunding bonds issued through the Philadelphia Hospitals and Higher Education Facilities Authority.
Morgan Stanley priced and repriced the bonds for institutions on Tuesday.
The deal included $219 million of hospital revenue bonds and $92 million of hospital revenue refunding bonds. Standard & Poor’s and Fitch Ratings assigned BBB-minus ratings.
Yields on both series were lowered from preliminary pricing. The first series priced with 5.625% coupons and yields of 5.8% in 2036 and 5.875% in 2042. The bonds are callable at par in July 2022.
Yields on the refunding bonds ranged from 3.625% with a 5% coupon in 2015 to 4.7% with a 6.25% coupon in 2023. Bonds maturing in 2023 are callable at par in July 2017.
Dilworth Paxson LLP was bond counsel and Fairmount Capital Advisors Inc. served as financial advisor.
The bonds are secured by a revenue pledge of an obligated group, which includes the Temple University Hospital Inc., Temple University Health System Inc., Jeanes Hospital, Temple Health System Transport Team Inc. and Temple Physicians Inc.
The bond sale comes ahead of the July 1 closing date of an affiliation agreement between the Temple University Health System and Fox Chase Cancer Center, which was signed in December.
Fox Chase will become a part of TUHS, and TUHS will make a payment of about $84 million to Fox Chase’s bank lenders to settle its outstanding obligations.
Proceeds from the first series of bonds will fund the payment as well as capital improvements of Fox Chase entities, renovations to Jeanes Hospital, and various projects within the obligated group, including the replacement of a garage and the purchase of equipment. Proceeds from the second series of bonds will currently refund outstanding hospital revenue bonds, Series 1993.
Moody’s downgraded TUHS’ bonds to junk from Baa3, citing an operating profile that has compared unfavorably to investment-grade metrics for several years. It assigns a stable outlook. It also cited acuity and volume declines and a disproportionate reliance on supplemental funding.
“TUHS’ sizable legacy operating base and expected affiliation with Fox Chase Cancer Center, a National Cancer Institute Comprehensive Cancer Center, provides a platform for future clinical expansion into quaternary level oncology, which may equate to the restoration of higher clinical acuity and healthier reimbursement for TUHS,” its report also said.
Standard & Poor’s revised the outlook to negative from stable.
“The outlook revision reflects our view of additional risk and debt due to the acquisition of Fox Chase Cancer Center, thin liquidity and risks related to forecasted volume growth from enhanced physician recruitment,” Standard & Poor’s said in a report.
Fitch assigned a stable outlook and cited the essentiality of the institution, a manageable debt burden, poor but improving profitability and light liquidity.