In one of the largest hospital deals in the Southwest this year, Arizona’s Banner Health System will price $607.6 million of taxable revenue bonds for new money and refunding Tuesday.
The bonds, rated AA-minus with stable outlooks by S&P Global Ratings and Fitch Ratings, are pricing as Series C through negotiation with senior manager Morgan Stanley, with Citigroup and JP Morgan as co-managers. Kaufman Hall is financial advisor.
With this deal, the 29-hospital Banner system will have $3.6 billion of outstanding debt, according to Fitch.
Proceeds will refinance 2008 and 2012A bonds, and provide about $110 million in funding for general corporate purposes. In addition to the 2020C transaction, Banner will be remarketing and converting $300 million of floating rate notes.
Though concentrated in Arizona, Banner maintains a significant presence in five other western states.
On Oct. 1, Wyoming Medical Center in Casper joined the Banner system in a $157 million deal that required approval from Natrona County Commissioners in Wyoming.
WMC is Wyoming’s largest hospital with 249 beds on two campuses, more than 45 medical specialties and 14 primary, specialty and immediate care clinics. As a regional trauma and referral center, WMC serves 11 Wyoming counties with more than 250,000 people.
Banner’s geographic diversity is a key credit strength as this helps insulate the system from adverse economic, demographic and operational challenges in any individual market, according to Fitch.
“Notwithstanding the near-term disruption from the coronavirus pandemic, Fitch expects Banner's improvements to operating margins will resume over the short term and continue to support their capital spending levels and liquidity growth,” analysts said.
Fitch expects a slow economic recovery beginning in this quarter of 2020.
“Fitch expects the system to ultimately finish fiscal 2020 at a profit, with operating EBITDA margins of approximately 8%,” analysts said.
Banner's comparatively earlier easing of restrictions on elective surgeries improved top line revenues and helped return it to near-normal levels in the early summer months before a new wave of coronavirus emerged, analysts said.
“As elective procedures remained open during this summer surge, Banner's financials were not affected as severely as they were during a near total shut-down of all non-emergent procedures when the coronavirus first presented itself,” Fitch said.
The Banner deal comes at the same time that health-care giant Common Spirit Health is coming to market with more than $2 billion of bonds.
Kaufman Hall on Monday reported that a survey found nearly three-quarters of hospital leaders across the nation are either moderately (52%) or extremely (22%) concerned about the financial viability of their organizations without an effective treatment or vaccine for COVID-19.
One-third of respondents in the survey saw operating margin declines in excess of 100% in the second quarter of 2020 compared with the same period of 2019.
"The challenges brought on by the COVID-19 pandemic have affected nearly every aspect of hospital financial and clinical operations," said Managing Director Lance Robinson. "Organizations have responded to the challenge by adjusting their operations and strengthening important community relationships."
