CHICAGO — Rush University Medical Center hits the market Thursday with its first issue in more than five years accompanied by a trifecta of good credit news on the $500 million refunding.
The Illinois Finance Authority will act as the conduit for Chicago-based Rush on its refunding of paper sold in 2006 and 2009 for savings and to remove restrictive covenants.
Goldman Sachs and Bank of American Merrill Lynch are senior managers. Loop Capital Markets LLC, Cabrera Capital Markets LLC, and William Blair & Co. are co-managers. Chapman and Cutler LLP is bond counsel and Public Financial Management Inc. is advising the system.
Ahead of the sale, Fitch Ratings affirmed Rush's A-plus rating while shifting its outlook to positive from stable. Moody's Investors Service upgraded its rating to A1 with a stable outlook from A2 and Standard & Poor's raised its rating to A-plus with a stable outlook from A.
All three cite the system's strong financial profile, profitability, and improved balance sheet following the completion in 2012 of its replacement tower in Chicago.
Rush highlights in an investors presentation its positive credit momentum underscored by six ratings upgrades since 2009. Chief financial officer John Mordach attributes it to the system's "predictable and sustainable" balance sheet improvements.
"We believe we are one of the leading academic medical centers in the region and that's being recognized in our financial performance," Mordach said.
The bonds are secured by a pledge of gross revenues of the obligated group. Rush operates a 677-bed hospital on Chicago's near west side, a university, an orthopedic hospital that houses Midwest Orthopedics Group, an 800-member physician group, Rush-Copley Medical Center, and Rush-Copley Memorial Hospital. Its university has more than 2,000 students.
The system generated nearly $2 billion of revenues in fiscal 2014. It system has a total of $622 million of debt outstanding with 84% in a fixed-rate mode, 15% swapped to fixed, and 6% in a variable rate structure supported by a letter of credit from Northern Trust Co.
"The upgrade to A1 reflects Rush's track record of double-digit operating cash flow margins in recent years, improved liquidity ratios, and good pro forma debt coverage ratios," Moody's said.
After the sale, maximum annual debt service is expected to fall to $47.4 million from $56.6 million, Fitch said. The system's liquidity has benefitted from the completion of Rush's $1.1 billion transformation project with levels rebounding now that capital spending has leveled off.
Capital spending is limited to $105 million in fiscal 2015 and $141 million in 2016 with no big new money borrowing planned. Unrestricted cash and investments equaled $1 billion covering 203 days of operations at the end of September.
Standard & Poor's said the system's balance sheet has benefitted from the transformation project "as well as continued key service-line investments, Rush's integrated approach to research, education, and clinical services, and physician alignment through the Rush Health organization."
Rush's challenges include operating in a highly competitive market with other prominent academic medical centers nearby, a somewhat challenging payor environment, and risks associated with the Illinois government's budgetary woes given its reliance on Medicaid for 16.9% of gross revenues, Moody's said.
The system's competitiveness benefits from a top clinical reputation with strong market shares in key specialties and the opening of its new tower, Fitch added.
