PHOENIX - The California Health Facilities Financing Authority will issue $500 million of revenue bonds next week for the Sutter Health hospital system in Northern California.
The bonds, rated AA-minus by Standard & Poor's and Fitch Ratings and Aa3 by Moody's Investors Service, are expected to price the week of Jan. 11. Morgan Stanley is lead underwriter on the deal, with a syndicate that includes Bank of America Merrill Lynch, Sutter Securities Incorporated, and Siebert Brandford Shank & Co.
Orrick, Herrington & Sutcliffe is bond counsel.
Sutter Health plans to use the proceeds to finance or refund previous expenses on several projects, including construction of two new hospitals targeted for completion in 2019 and another hospital that was finished in 2014.
"The rating on Sutter Health reflects a strong enterprise profile largely in northern California, combined with a solid financial profile," said S&P analyst Martin Arrick. "Sutter's financial profile has long been characterized by strong margins and cash flow generating sound coverage consistent with the rating, tempered by a balance sheet that, while strong and generally stable, overall is only adequate for the current rating."
Moody's said Sutter Health's strong market presence is a major credit asset.
"Moody's views Sutter's strong presence in Northern California as a key credit strength," the agency's analysts said. "The system includes 28 licensed acute care hospitals (with 30 facilities totaling 4,400 licensed beds), five medical foundations (consisting of over 2,500 physicians), and a large number of out-patient facilities, all concentrated in the northern part of the state. In 2013, Sutter started a health plan which has the ability to operate in all of its locations. The growth of the health plan has been purposely measured and modest, with membership reaching 33,000 at the end of 2015."
Fitch gave good marks to the system's debt portfolio.
"Total pro forma debt outstanding after this issuance is approximately $4.1 billion," Fitch said. "Sutter's debt profile is very conservative and is 100% fixed rate."
Headquartered in Sacramento, Sutter is a large healthcare provider that reported total revenue in fiscal 2014 of $10.2 billion.
