CHICAGO — St. Louis-based SSM Healthcare hits the market next week with the first pieces of $600 million of tax-exempt and taxable, fixed- and floating-rate debt that will incorporate the debt of two Wisconsin health systems acquired to expand its Midwestern footprint.

“This transaction achieves our goals by not increasing our debt levels over where they were at the end of 2017 plus Agnesian/Monroe debt, and it also moves us to our goal of an effective 70/30 mix between fixed- and variable-rate debt,” SSM's chief financial officer, Kris Zimmer, said in a recorded investor presentation.

SSM Health St. Mary’s Hospital - St. Louis
SSM Healthcare's St. Mary's Hospital in St. Louis. The hospital chain is planning $600 million of bond sales.

“It reduces our interest expense materially over the next five years and provides immediate reimbursement for our largest current capital project and integrates Agnesian/Monroe debt into our MTI, which will allow us to make them part of the credit group,” he added.

About $75 million represents new money but it reimburses the system for funds already spent.

Citi and Wells Fargo Securities are the lead managers. SSM officials and its bankers held investor meetings in Boston and New York City this week.

The borrowing offers $348 million of taxable bonds that SSM is selling on its own.

Separately, an A series for $67.4 million of tax-exempt debt with bullet maturities from 2046 to 2048 will sell through the Missouri Health and Educational Facilities Authority.

The B series in the deal for $35.1 million of tax-exempt five-year variable-rate put bonds selling through the Wisconsin Health and Educational Facilities Authority and a C series for $42.4 million of bonds structured like the B series will sell through the Missouri authority.

The taxable and A, B, and C series are slated to price on Wednesday.

Series D, E, and F series totaling $154.3 million of variable-rate bonds with daily and weekly resets will sell through the Missouri authority on May 7.

The deal will refinance existing SSM bonds, a credit line, and taxable commercial paper. It will defease and current refund some Agnesian debt and fund a swap termination payment and current refund and defease Monroe Clinic debt.

Agnesian adds $992 million in revenue and assets to SSM’s balance sheet and Monroe $664 million. Total revenue including SSM’s insurance plan is $7.5 billion.

SSM — a Catholic system — completed the acquisition of Fond du Lac-based Agnesian and Monroe-based Monroe Clinic in January from the Congregation of the Sisters of St. Agnes. It expands SSM's Illinois, Missouri, Oklahoma, and Wisconsin footprint further into Illinois and Wisconsin. Agnesian operates three hospitals and Monroe Clinic operates a hospital and 12 clinic locations.

SSM’s largest capital current capital project is a new $500 million Saint Louis University Hospital. SSM previously acquired the hospital.

Further growth and partnerships is a primary strategy and that “may include mergers and acquisition but it isn’t our goal to buy everything,” SSM Chief Executive Officer Laura Kaiser said in the presentation. Kaiser started at SSM last year, and half of senior leadership has since turned over. “We will need to look to new types of partnerships to make this happen.”

The finance team is highlighting the competitive and revenue benefits of the acquisition and expected improvements after struggles with volume trends and weaker payor mixes in fiscal 2016 and 2017.

Ahead of the sale, Fitch Ratings affirmed its AA-minus rating and negative outlook and S&P Global Ratings affirmed its A-plus rating and negative outlook. Moody’s Investors Service assigned a first-time rating of A1 and a stable outlook. The system has $2.5 billion of debt including notes and leases.

The rating reflects “several core strengths of the organization including its large size and scale, strong market positions in two distinct markets that contribute to revenue diversity, and a successful integrated system delivery model in the Wisconsin market that combines health services and insurance operations,” Moody’s said.

“The negative outlook on SSM Health reflects continued operating pressure with persistent losses and below expected performance in fiscal years 2016 and 2017,” S&P wrote.

“We believe the new team, its internal operating improvement program, benefits from the Agnesian and Monroe acquisitions, and several strategic initiatives underway, have potential to improve SSM Health's financial profile,” S&P said. “However, inability to show clear operating improvement and improved debt service coverage … or any material weakening of the balance sheet will likely result in a downgrade next year.”

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