Fitch Ratings last week placed Silver Cross Hospital and Medical Center’s A credit on negative watch as it prepares to refund $89 million of bonds through the Illinois Finance Authority to restructure $80 million of 2005 auction-rate bonds.
The agency’s action reflects the significant increase in debt Silver Cross would issue to construct a 289-bed, $400 million replacement hospital about 3.5 miles from its current home in Joliet, 40 miles southwest of Chicago. The hospital anticipates issuing about $265 million of new-money bonds to help finance the facility. The current facility has 309 beds.
Silver Cross still needs regulatory approval from the state to proceed. Officials have applied for a certificate of need through the Illinois Health Facilities Planning Board with a ruling expected next month.
“Approval of Silver Cross’ CON application is uncertain at this time,” Fitch analysts wrote. “Should the CON application be denied or delayed indefinitely the rating watch is expected to be removed and a stable outlook assigned.”
Because the CON process is still pending and could face delays, Standard & Poor’s opted to leave the hospital’s A rating and stable outlook intact in its latest review, said analyst Antoinette Maxwell. “Standard & Poor’s would view a bond issue of this size to be consequential, resulting in a lower rating ... although the timing of the bond issue is expected to take place within the next 12 months, a rating action is not being taken now due primarily to the certificate of need requirement from the state of Illinois, which could be a lengthy process and has been deferred once already,” she wrote.
The A rating is supported by growing patient volumes, market share gains amid rapid population growth in the region, solid profitability, and strong growth in liquidity. Between 2003 and 2007, inpatient admissions increased by 16.3% to a total of 17,010 while emergency room visits increased by 29.2% to 54,192 and surgical procedures increased 26.7% to 12,976.
The hospital will issue uninsured fixed-rate bonds to replace its auction-rate debt. The hospital also plans to restructure about $21 million of auction-rate bonds in a future transaction.
