DALLAS — Catholic Health Initiatives of Colorado will carry $6 billion of debt after this week’s issuance of $1.5 billion of taxable bonds to expand its network, a fact that resulted in rating downgrades for the health care giant.
“The lowered rating reflects our view of CHI’s issuance of $1.5 billion in new debt, a very significant amount that results in an overall financial profile that is no longer commensurate with the AA rating,” said Standard & Poor’s credit analyst Liz Sweeney.
S&P and Fitch Ratings lowered the nonprofit to AA-minus from AA, while Moody’s Investors Service dropped the rating to Aa3 from Aa2.
“The rating downgrade is attributable to a sizable 32% increase in direct debt that weakens all debt measures,” said Moody’s analyst Kay Sifferman.
Outlooks are stable, which Fitch said reflected its expectation “that CHI will be successful in the long term with its strategic investments.”
The Series 2012 bonds will finance acquisition of the remaining interest in Alegent Creighton Health, expansion strategies with PeaceHealth, ambulatory care and physician expansion strategies, and technology updates.
The negotiated deal with JPMorgan and Morgan Stanley is the largest bond issue in the history of Englewood, Colo.-based CHI and also represents one of the largest taxable bond issues ever by a nonprofit health care organization. CHI operates 76 hospitals and other health care facilities in 19 states,
“The proceeds will allow this organization to truly fulfill its strategic goals to improve and expand health care in every community it serves,” said Dean Swindle, CHI’s executive vice president for business services and chief financial officer. “It provides the flexibility we need to take advantage of future opportunities in a constantly changing health-care environment.”
This is the first time that CHI has issued long-term, fixed-rate taxable bonds. Officials said that taxable bonds could be issued more quickly through the market than most tax-exempt bonds, providing streamlined access to capital for both nonprofit and for-profit business lines and services.
“We consider this an essential investment in our future,” said Kevin Lofton, CHI’s president and CEO since August of 2003.
CHI has seven floating-to-fixed interest rate swap agreements outstanding with a total notional amount of $931.8 million. Under its policy, as a general rule, counterparties must have a Moody’s rating of Aa or better.
Under the 2004 interest-rate swap agreement with UBS, CHI pays a fixed rate of 3.765% and receives 70% of the one-month London Interbank Offered Rate. Under the 2005 agreement with Bayerische Landesbank, CHI pays a fixed rate of 3.275% and receives 70% of one-month Libor.
Catholic Health Initiatives entered into additional interest rate swap agreements with UBS and JPMorgan under which CHI pays a fixed rate of 3.57% and receives 64.5% of one-month Libor plus 14.5 basis points.
The swap agreements were entered to synthetically convert a portion of the Series 2004, 2006 and 2007 variable-rate bonds to fixed rate.