Indiana University Health plans to sell $637 million of revenue bonds Tuesday to fund expansion and upgrade projects and diversify its debt portfolio.
The Indianapolis-based academic health system affiliated with the Indiana University School of Medicine will sell a mix of new money and refunding bonds through the Indiana Finance Authority.
The tax-exempt transaction offers $292 million of hospital revenue bonds and $345 million of health system revenue bonds. The deal will add $280 million in new debt.
“We view the current market as attractive for sourcing a portion of the capital for our hospital expansion projects and to help reposition our capital structure,” said Matt Burgoyne, director of debt and derivatives for IU Health.
IU Health will convert its direct placement debt sold in 2011 and 2015 to publicly issued put bonds or floating-rate notes. The bonds are structured as a mix of fixed rate, long-term interest rate and SIFMA index rate bonds.
“We like using a mix of products to diversify and blend down interest cost, so we are offering a wide range of maturities and rate types,” Burgoyne said.
IU Health also plans to issue $44 million of taxable bonds under the existing CUSIP on the outstanding series 2018A taxable bonds that will be used to finance some of the health system’s partial swap terminations.
The new money proceeds will help fund a replacement hospital for IU Health Bloomington on the campus of Indiana University. Other projects being funded include the relocation of women's services to the system's children's hospital in Indianapolis, an expansion of IU Health's West Hospital in response to population growth and existing capacity constraints, construction of a 12-bed replacement critical access hospital at IU Health Frankfort Hospital, and construction of a cancer center on the IU Health North Hospital campus.
Citi is the senior manager and JP Morgan is co-manager. Ice Miller LLP is bond counsel. Citi and JP Morgan are the remarketing agents on the bond conversions.
Moody’s Investors Service affirmed its Aa2 issuer credit rating ahead of the deal.
“The system will be well-positioned to manage a large upcoming capital cycle given strong cash flow and liquidity resources, treasury risk reduction strategies, and a high degree of planning to allow for flexibility,” said Moody’s.
Fitch Ratings and S&P Global Ratings affirmed their AA ratings. All rating outlooks are stable. The system has roughly $1.5 billion in outstanding debt.
“The revenue bond rating reflects IU Health's robust operating profitability and important role as the largest healthcare system and academic health system in the state,” said Fitch. “Its partnership with IU School of Medicine — the largest medical school in the country — enhances IU Health's brand and clinical research, making it a destination for complex care in Indiana and the market leader in its broad service area.”
The system operates 17 hospital locations throughout the state, including a large academic medical center in Indianapolis. Total consolidated operating revenues equaled $6.4 billion in fiscal 2018.
