Taxables dominate Ascension Health refunding deal
St. Louis-based Ascension Health Alliance will use a mix of taxable and tax-exempt paper when it prices up to $856 million of refunding debt Tuesday and Wednesday.
Morgan Stanley is running the books and will begin taking orders on Tuesday with the final pricing on Wednesday on up to $708.8 million of taxable debt and up to $147.4 million of tax-exempts, with the latter being sold through the Wisconsin Health and Educational Facilities Authority.
Bank of America Merrill Lynch and JPMorgan are also on the underwriting team. Kaufman, Hall & Associates LLC is advising Ascension, which is one of the largest not-for-profit healthcare systems in the country. Orrick Herrington & Sutcliff LLP is bond counsel on the tax-exempt borrowing. Proceeds will refund debt from 2010 and 2012.
Ahead of the sale, Fitch Ratings and S&P Global Ratings affirmed the system’s AA-plus ratings and Moody’s Investors Service affirmed its Aa2 rating. All assign a stable outlook.
The system has more than $7 billion of senior debt and about $350 million of subordinated debt. Ascension provides self-liquidity for about $2 billion of floating-rate or serial mode bonds. Swaps are tied to $1 billion of debt.
The rating “reflects our expectation that Ascension will continue to build on its already excellent enterprise profile as it benefits from its considerable size and scale and maintains a national presence with broad geographic coverage," said S&P analyst Stephen Infranco. “The stable outlook reflects our view that Ascension's exceptional enterprise profile will be maintained as management focuses on implementing its strategy around care delivery and new business models.”
While the system’s financial profile remains sound and it benefits from a strong liquidity position, S&P warned that operations remain modest with debt service coverage below levels typical of that rating level.
Ascension operates 119 general acute care hospitals, two long-term acute care, eight psychiatric hospitals, and five rehabilitation hospitals for a total of 25,000 total available beds.
Total operations include approximately 2,600 total sites of care in 21 states and the District of Columbia producing revenues of $25.3 billion in fiscal 2019. The system has $40 billion in assets and unrestricted reserves of $17.7 billion.
Ascension’s size has been driven by a years-long series of acquisitions. “Ascension continues to actively manage its operating portfolio through mergers, acquisitions and divestitures,” Fitch said, adding that it “continues to view Ascension's proactive approach to managing the operating portfolio as fundamental credit strength.”
The most recent acquisition was a skilled nursing and memory care facility called Sienna on the Lake in Racine, Wisconsin. It divested of Lourdes Health Network in Pasco, Washington, and acquired the remaining 80% of Bay Medical Center in Panama City, Florida, and acquired Allegan General Hospital in Allegan, Michigan.
Ascension undertook a senior management team overhaul effective July 1 with long-standing chief executive officer Tony Tersigni and chief financial officer Tony Speranzo stepping down and assuming different roles within the organization. Joseph Impicciche is now CEO and Elizabeth Foshage is CFO.
“Despite the modifications, Fitch is confident that this current management team will continue Ascension's long history of mission delivery, operational success and overall credit strength,” its analysts wrote.
“The system’s centralized governance and operating model, as well as recent management restructuring, will provide a strong platform for further efficiencies and accelerated growth strategies," Moody's wrote. "Before considering investment performance, near-term liquidity growth will slow because of increasing capital spending.”