CHICAGO – Presence Health in Illinois will privately place up to $215 million of bonds in a deal that restructures outstanding debt of the two Chicago-area systems that joined in 2011 to form the new system.

The deal marks the largest in a handful of transactions totaling $347 million that the Illinois Finance Authority advanced at a recent board meeting on behalf of not-for-profit Illinois healthcare and educational borrowers.

Many of the borrowers are turning to private placements, finding the terms offered by their banks present savings opportunities greater than current market rates.

Presence was adopted as the new name of the system created by the November 2011 merger of Chicago-based Resurrection Health Care and Mokena-based Provena Health to establish the largest Catholic system in Illinois. It operates 12 hospitals and 27 senior living and long-term care facilities. The system is based in Chicago.

Under the IFA’s preliminary approval, Presence will select refunding candidates from five series representing up to $125 million of variable-rate demand revenue bonds from a 2005 issue on behalf of Resurrection, up to $75 million of a 2009 Provena issue of floating-rate bonds, and up to $72 million of Provena floating rate debt from a 2010 sale.

The system carries ratings of Baa1 from Moody’s Investors Service and BBB-plus from Fitch Ratings and Standard & Poor’s. All assign a stable outlook.

The system expects to issue the bonds at a variable rate tied to the London Interbank Offered Rate under a master trust indenture amended this past May to consolidate all its debt.

Fitch Ratings said it viewed the move “positively, as it will reduce associated annual costs by approximately $2.5 million and allow for capital structure improvements.”

Presence is working with Bank of America Merrill Lynch, BBVA Compass Dallas, and BMO Harris Bank. Kaufman Hall is advising Presence Health and Jones Day is bond counsel.

Fitch in July affirmed its rating on the $583 million of Presence debt it rates. Presence has a total of $1.1 billion of debt outstanding. Its bonds are supported by a pledge of gross revenues of the Presence Health obligated group, mortgages on nine Presence acute care facilities and a debt service reserve fund on certain bonds.

The system generated $2.7 billion of revenues in fiscal 2012. It had solid liquidity with unrestricted cash and investments equaling $1.1 billion at the end of May, providing 167.1 days of cash on hand and 2.6 times debt service coverage.

With its one-time merger expenses behind it, the system is now seeing improved cash flow as operating efficiencies come to fruition. Its 2012 results showed a solid improvement over 2011.

It faces a challenge in meeting its budget, however, given a slide in profitability due to weaker than expected inpatient volumes. The system believes it is on course to capture $100 million efficiencies in fiscal 2014 through merged operations in the areas of clinical work, payor and supply contracts, and facilities management, and service lines.

“Fitch views the larger scale and service area diversity of the merged entity favorably,” analysts wrote. “Presence Health’s inpatient market share of 27.63% in 2012 in the 91-ZIP code Chicagoland service area is second only to Advocate Heath Care. Further, Fitch believes Presence should be able to extract additional benefits from its size and scale in advocacy and managed care contracting.”

In addition to meeting its current budgeted projections, the system is challenged by its operation in a highly competitive healthcare region, Fitch said.

In other recent Illinois Finance Authority business, Noble Network of Charter Schools received preliminary approval for its planned private placement of up to $23 million to raise new money, reimburse itself, and refund a small taxable loan. Projects are slated at a handful of its charter schools.

Noble has applied for a rating from Standard & Poor’s with the finance team expecting a low investment grade level credit assignment of BBB-minus to BBB.

Noble is a network of charter schools established in 1999. Its aim is to prepare “low-income students with the scholarship, discipline, and honor necessary to succeed in college and lead exemplary lives, and serves as a catalyst for education reform in Chicago,” according to IFA documents.

Two Chicago Public Schools teachers opened Noble’s first school in 1999 and it has steadily expanded and now operates more than a dozen campuses with several more slated to open this year. The placement agent is Ziegler Capital Markets Group and bond counsel is Greenberg Traurig LLP.

The Illinois College of Optometry, founded in 1872, received final approval for its refunding of $42 million in a sale expected to be privately placed with BMO Harris Bank. Ziegler Capital Markets Group is the placement agent and bank counsel is Chapman and Cutler LLP.

“The Illinois College of Optometry has a long and distinguished legacy as the oldest continually operating educational facility in the world dedicated solely to the teaching of optometrists,” IFA documents on the transaction said.

Peace Village received final approval for its issue of up to $30 million to raise new money and refund debt tied to its senior living community in suburban Chicago. The unrated bonds will be sold with a fixed-rate structure and are secured by a mortgage and revenue pledge.

The village is located in Palos Park and consists of 238 independent living units. Circle Inn, on the same campus, consists of 65 assisted living apartments. Ziegler Capital Markets Group is underwriting the deal and Jones Day is bond counsel.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.