Ohio based Kettering Health Network will sell $200 million of new money and refunding bonds Thursday in a deal that will fund projects key to the network’s Dayton-area expansion.
The bonds will be issued through Miami County. Roughly $100 million of the bond proceeds will be used to fund costs of the projects that include a new hospital set to open in the summer. The remaining proceeds will be used to refund bonds the network issued in 2009 at a savings. The refunding is expected to generate a $16.6 million saving for the system.
“The 2019 bonds will allow capital spending from bond funds and includes reimbursement for prior spending, driving strong liquidity growth in fiscal 2019,” Edward Mann, Kettering's treasurer, said in a recorded investor presentation.
Mann said one of the two projects that will be reimbursed from the 2019 bond financing is the $60 million, 40-bed hospital in Troy, Ohio, which is set to open in the summer. The project includes outpatient facilities and physicians’ offices.
Bond proceeds will also reimburse the system for the cost of a $30 million medical facility in Middletown that opened in August 2018. The new facility features a full-service emergency department, outpatient lab and imaging services, including a full complement of magnetic resonance imaging, computed tomography, X-ray and ultrasound. The facility also has a medical office building for primary care and specialty practices, an outpatient cardiac testing area.
Moody’s Investor Service affirmed the system's A2 rating and S&P Global Ratings affirmed its A-plus rating. The outlook from both rating agencies is stable. The network has roughly $617 million of bonds outstanding.
RBC Capital Markets and Bank of America Merrill Lynch are co-senior managers. Dinsmore & Shohl LLP is bond counsel.
“The A2 rating reflects Moody's expectation that Kettering Health Network (KHN) will continue to maintain a favorable market position, taking share from its key competitor, in a broad service area,” Moody’s said.
“The stable outlook reflects our expectation that, over the two-year outlook period, KHN will be able to meet its budget, which calls for a greater than 3% margin, while continuing to execute its strategic plan,” S&P said.
Kettering has seen a 33.9% growth in market share as of June 30, 2018 from 30.8% in 2014.
“We are on a consistent trend to increase our market share and in terms of the market this is also coming at a decline in our regional competitor,” Todd Anderson, executive vice president of finance and clinical integration, said in an investor presentation.
The network’s key competitor, Premier Health Partners, was downgraded to Baa1 from A3 by Moody’s on Tuesday. The downgrade affects about $623 million debt outstanding and comes on the back of declining volume trends and weak operating performance in 2017 and 2018. The outlook remains negative.
