CHICAGO - Wisconsin-based Froedtert & Community Health closes today on its $189 million refunding of variable-rate revenue bonds that shed the old debt's insurance from downgraded Ambac Assurance Corp. in favor of a letter of credit from U.S. Bank NA.

Froedtert divided the deal into two equal series, with one repricing daily with Morgan Stanley serving as the underwriter and remarketing agent and the other repricing weekly with Ziegler Capital Markets serving as underwriter and remarketing agent.

The weekly securities priced at 0.55% and the dailies at are scheduled to be priced today ahead of the closing. Kaufman, Hall & Associates was financial adviser and Quarles & Brady LLP was bond counsel. The bonds were sold through the Wisconsin Health and Educational Facilities Authority.

The bonds were assigned ratings based on the direct-pay LOC from U.S. Bank. Fitch Ratings assigned its AA-minus and F1-plus and Standard & Poor's assigned its AA-plus and A-1-plus.

Wauwatosa-based Froedtert has spent the last six months working out details of both its affiliation with SynergyHealth Inc. and restructuring its insured variable-rate and auction-rate debt. The system last fall issued $450 million of debt to refund auction-rate securities and debt held by Synergy and to raise $100 million of new money.

Froedtert and Synergy over the summer formally signed an affiliation agreement that folds Synergy into Froedtert's obligated group. Synergy had $70 million of outstanding debt compared to Froedtert's $291 million at the time. The affiliation raised the amount of debt secured by the Froedtert obligated group by 24%.

The union joins two systems that serve southeast Wisconsin. Synergy operates the 119-bed acute-care hospital St. Joseph's, a 74-physician multi-specialty group, the West Bend Clinic, and an outpatient surgery center.

Froedtert operates two hospitals - the 655-bed Froedtert Memorial Lutheran Hospital and 237-bed Community Memorial Hospital - in addition to several ambulatory and outpatient care locations throughout the Milwaukee region. The flagship hospital shares a campus with the Medical College of Wisconsin and the Children's Hospital and Health System.

Froedtert and Synergy, like most health care providers, have struggled in the current financial environment with layoffs were recently announced at St. Joseph's Hospital in West Bend. The hospital eliminated 29 positions and cut the hours of 70 other staff members to cope with a decline in admissions and spike in charity care.

The system could receive a small infusion of additional Medicaid-related funding - estimated at about $43 million over three years - if state lawmakers approve Wisconsin Gov. Jim Doyle's proposal to enact an assessment tax on hospital revenues. The goal of the program, which also would need federal approval, is to leverage additional Medicaid matching funds.

The system is rated AA-minus by Fitch and Standard & Poor's.

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