The largest hospital operator in Rhode Island is coming off of a big year — it acquired two Massachusetts hospitals out of the Steward Health Care bankruptcy while rebranding from Lifespan to Brown University Health.
Its upcoming bond deal will refund the debt that fueled those big moves. Meanwhile, the health system continues to manage its expansion into Massachusetts and its sizable capital projects.
They were previously units of Steward Health, a for-profit chain that collapsed into bankruptcy in 2024 amid financial dealings that
Brown Health has plans to price $245 million of tax-exempt debt next week, and may add $155 million of taxable bonds depending on market conditions.
"We plan, when all this is done, to have no new debt," Brown University Health Treasurer Marianne Kennedy said. "All proceeds of this new borrowing will be used to replace temporary debt that we took out in December, when we didn't have time to go to the market."
The tax-exempt bonds will be issued through the Massachusetts Development Finance Authority in a negotiated deal with two tranches. The first tranche is $160.825 million of fixed-rate revenue bonds; the second is $85 million of long-term mode revenue bonds. Final maturity dates are planned for 2050 and 2055, respectively.
Morgan Stanley is the deal's manager, and Troutman Pepper Locke is counsel. The bonds are rated BBB-plus with a stable outlook by S&P Global Ratings and BBB-plus with a negative outlook by Fitch.
Fitch analyst Meggi Carr said the negative outlook was prompted by the health system failing to meet its budgeted performance for 2024. The worse-than-expected operating margins, combined with two new hospitals and a sizable capital plan, caused Fitch to lower the outlook to negative.
For the taxable deal, which is dependent on market conditions, the team is prepared to issue $154.975 million of GOs directly from Brown University Health with a final maturity in 2031. Morgan Stanley would also be lead manager on that deal, with Ropes & Gray as counsel.
Brown Health will use the tax-exempt bonds to refinance the Steward acquisitions, Kennedy said, and "to reimburse ourselves for some incremental capital that we'll be investing in those facilities and our recent
The taxable debt would repay loans that Brown Health took out in December to provide liquidity and working capital for the Massachusetts hospitals.
Kennedy said she expects to see greater savings from the tax-exempt deal than the taxable. Rates are still unpredictable right now, Kennedy said, but if they stay around 4.5% to 5%, she expects to see 50 to 100 basis points of savings.
When Steward went bankrupt, it was uncertain whether its eight hospitals in Massachusetts would survive.
Six of those hospitals were purchased by other hospital operators, after efforts from state officials.
"There were Steward facilities in states around the country, but only in Massachusetts were we able to do what we did," Gov. Maura Healey said in November. "To save hospitals, to protect jobs and to protect the stability of a health care market and access to critically needed care."
The acquisition was advantageous for Brown Health, which had thousands of patients in Massachusetts but no hospitals.
Fall River, where St. Anne's is located, sits on the Rhode Island border while Morton Hospital in Taunton is less than 15 miles from the state line.
"By [multiple] measures, Brown Health is Rhode Island's and Southeastern Massachusetts's largest health system, serving a population of nearly 1.5 million patients in its Service Area," the offering statement for the deal said.
"It just made sense from our strategic plans to expand there," Kennedy said.
Although acquiring the hospitals has clear benefits for Brown Health, integrating new hospitals is a challenging process, Carr said.
"Risks and challenges associated with the integration of the Massachusetts hospitals include the realization of forecasted volume, physician recruitment and retention," the offering statement said.
The process also involves administrative efforts, upgrading equipment and converting the hospitals' record systems to Epic
"The integration, I would say, generally, has been going well from a people standpoint and from a capital standpoint," Kennedy said, adding that there have been "no major surprises" and Brown Health was "happy" with the condition the hospitals were in.
In the first quarter, "Rhode Island operations were a little bit stronger than Mass.," Kennedy said. "But Mass. is coming along."
In October, fifteen days after acquiring the two new hospitals, the system announced its
Brown University operates the only medical school in Rhode Island, and system flagship Rhode Island Hospital in Providence is its main teaching hospital, the offering statement said.
The rebranding and new affiliation also comes with monetary benefits.
Over the first seven years of the new affiliation with Brown, the university will "make available" $150 million (subject to inflation adjustments) to fund "mission-oriented expansion activities and strategic initiatives," the offering statement said. In 2024, the university paid Brown Health $10 million.
Brown Health will also add hundreds of millions of its investments to the university's endowment funds, hopefully increasing the health system's returns.
"After the first seven years of the affiliation, Brown University Health will provide the university with enhanced fixed mission support funding in the amount of $15 million annually (subject to inflation adjustments), in addition to certain other mission support payments," the offering statement said.
Fitch views the affiliation with Brown University favorably. Brown's name and reputation gives the hospitals "more than a little bit of an edge," Carr said, and will "enhance the health system's ability to recruit, to get access to research, innovation."
Although many elite universities have been adversely affected by recent federal policies, Kennedy said she's not aware of any reason the hospital system's funding from the university would be jeopardized. She has not had any direct conversations with anyone from Brown University about the subject, she said.
The university is among the Ivy League institutions
Brown Health has a large ongoing capital program for Rhode Island Hospital, Kennedy said, and plans to renovate the emergency department at Miriam Hospital. Carr said the size of the capital programs were a concern, given the rest of the pressures on the health system, but noted that Brown Health built flexibility into the project.
Brown Health's target is a 3% operating margin, Kennedy said, and if it fails to hit that margin, there are "definite exit ramps." The Rhode Island Hospital renovation is a "long-term, multi-phased hospital campus rebuild," Kennedy said.
Funding for the first phase of the project was secured through a bond deal early last year, Kennedy said. Brown Health plans to fund future phases of the project through its operating budget.
