DALLAS — Baylor Health Care System anticipates no debt restructuring if a planned merger with Scott & White Healthcare is completed as expected by the end of the month, analysts said.
The combination of the two providers would create the largest nonprofit health-care system in Texas.
With the merger pending, Baylor is issuing $247.7 million of revenue bonds in three series through the Tarrant County Cultural Education Facilities Finance Corp. this week.
The issue includes $45 million of taxable Series C bonds, with $166.7 million of Series A and $63 million of Series B bonds as tax-exempt.
Senior managers are JP Morgan and Citi.
The new Baylor issue brought a downgrade from Moody's Investors Service to Aa3 from Aa2 with the outlook revised to stable.
"The rating downgrade reflects Baylor's absolute and relative cash position that, although improved, remains weak compared to the Aa2 medians," wrote Moody's lead analyst Sarah Vennekotter.
Standard & Poor's issued an opinion on the upcoming bond deal with analysis of the merger, saying it would provide an immediate enhancement, but that key financial profile metrics, most specifically the combined balance sheet metrics, would weaken and could put pressure on the rating for a short period.
It rates Baylor Health AA-minus with a stable outlook.
"Our longer-term view is that balance sheet metrics will ultimately improve under a combined organization," wrote S&P analyst J. Kevin K Halloran in the April 4 report.
Dallas-based Baylor Health Care System is already the largest nonprofit healthcare provider in the Dallas-Fort Worth area, with more than 300 facilities.
Under the merger announced Dec. 12, the combined systems would represent a $7.7 billion organization with 42 hospitals, more than 350 patient care sites, more than 4,000 active physicians, and 34,000 employees.
Scott & White, based in Temple, Texas, issued $176.7 million through the same conduit issuer Feb. 22. With $853 million of debt outstanding, the Scott & White revenue bonds carried ratings of A from Standard & Poor's, A1 from Moody's and AA-minus from Fitch Ratings.
With the advent of the Affordable Care Act and other changes in federal health-care law, the number of hospital partnerships, mergers, joint ventures and other arrangements is growing rapidly. Since 2008, there have been 274 mergers and acquisition transactions affecting 439 hospitals, up nearly 22% over the previous four-year span.
Texas Gov. Rick Perry has rejected $100 billion in federal funding for Medicaid expansion over the next 10 years.
"In this new era, health systems must be prepared for declining reimbursement, high levels of information management, an increasing demand for primary care services and 'population health management' to advance the wellness of large groups of patients and keep them out of the hospital," BHCS and S&WHC said in a statement on the merger.