Outlook boost for junk-rated Flint hospital ahead of deal

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Flint, Michigan-based Hurley Medical Center's rating outlook was revised to stable from negative by Moody’s Investors Service on its improved financial performance. The speculative-grade Ba1 rating was affirmed.

The outlook change comes ahead of the medical center's pricing of $52 million in tax-exempt revenue bonds Tuesday. The bonds will be issued via the Flint Hospital Building Authority.

Raymond James is the senior manager. Hawkins Delafield & Wood LLP is bond counsel. Kaufman, Hall & Associates is advising the medical center.

Hurley is a public hospital operated by the city, which appoints the hospital’s board and makes some financial decisions. However, the city isn’t obligated on the bonds.

Fitch Ratings assigns Hurley an investment grade BBB-minus rating.

Moody's said debt service coverage will improve following a material reduction in maximum annual debt service in fiscal 2021, however Hurley's large underfunded pension liability and some limitations on partnerships as a component unit of the City of Flint may limit upward rating momentum.

Bond proceeds will be used to refund $31 million of revenue bonds Hurley issued in 2010. Roughly $20 million of bond proceeds will be used finance capital projects to renovate and upgrade its health care facilities and the remaining bond proceeds will be used fund the debt service reserve fund and reimburse the hospital for around $1.5 million of previous capital expenditures.

The refunding is expected to lower the medical center’s interest expense by $600,000 a year for the next 20 plus years for more than $10 million in net present value savings, according to an investor presentation.

The $20 million of new money bonds will be used for infrastructure improvements to Hurley which includes energy-saving upgrades such as new generators, chillers, pipes and wiring.

“Hurley has limited environmental considerations and bond proceeds will be used to update hospital infrastructure to better address severe weather events, such as a polar vortex,” Moody’s wrote.

Bonds will be secured by a pledge of net revenues of the obligated group, as defined in the bond documents. Hurley is the only member of the obligated group. A debt service reserve fund will be established with the 2020 bonds.

The medical center serves a six-county area of Genesee, Lapeer, Shiawassee, Oakland, Saginaw and Tuscola counties. It has an extensive teaching residency program partnerships with both the University of Michigan and Michigan State University and is the only provider of certain high acuity services including Level I trauma and Level II pediatric trauma in the region.

Hurley recorded total consolidated operating revenue of approximately $465 million in fiscal 2019.

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