CHICAGO – Missouri-based St. Luke's Health System heads into the market with a $250 million refunding Thursday that will shed some floating rate risk.
The deal -- selling through the Missouri Health and Educational Facilities Authority -- will refund debt issued in 2003, 2005, and 2012, offering serial and term bonds maturing from 2020 to 2042 in a fixed-rate structure.
The system, which is the largest serving the Kansas City area, will advance refund 2003 and 2005 bonds and current refund a portion of its 2012 floating-rate direct placement securities.
Present value savings of $25 million to $30 million are expected, chief financial officer Chuck Robb said in an investor presentation. "We are not adding new debt," he said. The system has $342 million of outstanding debt.
The system operates 10 hospitals, including five in the obligated group which accounted for 93% of 2015 operating revenue. It holds a stable market position and saw volume growth last year.
"We had a very strong year in all our measures and have continued to grow in the last five years," Robb said. The system generates about $1.4 billion in patient revenues and serves as the teaching facility for University of Missouri-Kansas City medical school.
Ahead of the sale, Standard & Poor's affirmed the system's A-plus rating. "We think the refunding moves the system's debt profile into a more conservative allocation of fixed- and variable-rate debt, and recognize that the entire refunding transaction provides significant net present value savings," said Standard & Poor's analyst Jennifer Soule.
RBC Capital Markets and JPMorgan are the senior managers. Kaufman Hall & Associates is advising the system and Gilmore & Bell PC is bond counsel.
Moody's Investors Service affirmed the system's A1 rating and stable outlook. Moody's noted the challenge of operating in a competitive market and said it expects St. Luke's rebuild liquidity over time and strengthen debt service coverage ratios.
"Failure to generate notably improved liquidity ratios likely will pressure the outlook and rating," Moody' said.
