CHICAGO - The Wisconsin Health and Educational Facilities Authority yesterday advanced the borrowing plans of four major health care systems totaling about $800 million in new-money and refunding debt, including $450 million from Froedtert & Community Health Inc.
In addition to Froedtert, the authority approved ProHealth Care Inc.'s application to sell up to $150 million of new money and refunding debt in a fixed-rate sale; Agnesian Health Care Inc.'s $51 million variable-rate issue that will refinance auction-rate securities; and Aurora Health Care Inc.'s $160 million new-money sale using a variable-rate structure. Froedtert's deal includes $100 million of new money with the rest refinancing auction-rate securities and the debt of a recently acquired facility using a fixed-rate structure.
With the primary market for fixed-rate issuance still light, Froedtert and ProHealth are not expected to move soon with their sales. The deals planned with the variable-rate structures are expected first.
Although Agnesian still has some negotiations to complete with its letter of credit provider, Aurora is ready to proceed by early next month, said WHEFA executive director Lawrence Nines.
"We are seeing the variable-rate deals getting done, but the line is getting longer for fixed-rate," he said.
The Aurora sale for about $160 million will provide new money for the construction of two new hospitals in the Milwaukee suburbs, including one now under construction in Summit and another that is planned for Grafton.
The variable-rate deal will carry a letter of credit from US Bank with Goldman, Sachs & Co. and Merrill Lynch & Co. serving as the underwriters. The system carries existing ratings of BBB-plus from Standard & Poor's and an A from Fitch Ratings. The system may seek a rating from Moody's Investors Service.
Fitch earlier this year upgraded Aurora in recognition of its strong credit profile and establishment as a fully integrated health care delivery system. The action impacted about $510 million of debt. Fitch analysts said the upgrade was based on Aurora's low operating risk profile gained via its large and integrated delivery system, its consistent improvement in operating profitability, and excellent management practices.
With 13 hospitals located throughout eastern Wisconsin, Aurora is the largest health care provider in the state. Credit concerns include light liquidity levels, competition in the Milwaukee market where it holds the leading share of 35%, and future capital spending. Aurora had total operating revenues of $3.2 billion in fiscal 2007.
Wauwatosa-based Frodtert's deal includes $100 million of new money with the rest going to refund outstanding auction-rate securities and debt held by SynergyHealth Inc. for its St. Joseph's facility in West Bend.
Froedtert and Synergy over the summer formally signed an affiliation agreement that folds Synergy into Froedtert's obligated group. Synergy has $70 million of outstanding debt compared to Froedtert's $291 million. The affiliation will raise the amount of debt secured by the Froedtert obligated group by 24%.
Synergy had total revenues of $141 million in fiscal 2007, equal to about 16% of Froedtert's revenues of $903.2 million the same year. The union joins two systems that serve southeastern 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.
Ziegler Capital Markets and Morgan Stanley are the underwriters. The system is rated AA-minus by Fitch and Standard & Poor's.
Agnesian would use all of its proceeds to eliminate its auction-rate debt. The system will use a variable-rate weekly remarketing structure with a letter of credit being provided by Marshall and Ilsley Bank. Piper Jaffray & Co. is the underwriter. The system is rated A-minus by Standard & Poor's and A3 by Moody's.
Froedtert and Agnesian are among the last remaining clients of WHEFA to refinance their auction-rate securities. Before the market collapsed early this year, WHEFA had nearly $2 billion of ARS on behalf of its borrowers. Nines said some borrowers did not move as quickly as others - such as Froedtert - because its maximum rate was not overly exorbitant.
ProHealth's issue includes $100 million of new money to finance emergency room improvements at one facilities and laboratories at another. Another $50 million would refinance existing debt depending on interest rates. Piper Jaffray and JPMorgan are underwriters on the deal. The system is rated A1 by Moody's and A-plus by Standard & Poor's
The WHEFA board also approved several amendments to pending deals, due to the market turmoil. The board increased the maximum borrowing rates above 6% for a Milwaukee-based private high school and ThedaCare Inc.'s $128 million sale.
The board also approved Marquette University's amendment allowing it to issue the remainder of its overall $110 million sale with a variable-rate structure. The university last month sold about $51 million using a variable-rate structure but put the remaining piece with a fixed-rate structure on hold.
