The $735 million bond deal the University of Pittsburgh Medical Center is pricing Wednesday reflects the healthcare nonprofit's confidence that it can move on from recent pressures on the healthcare and insurance industries.
But the national environment cannot guarantee smooth sailing, analysts warn.
"While they may have fixed some of their problems, it doesn't mean that it's gone away," Fitch Ratings Director Meggi Carr said.
The bonds will be issued in three series through negotiation.
Series 2025A, $312.55 million of tax-exempt put bonds, will be issued through the Pennsylvania Economic Development Financing Authority. Proceeds from this series will fund its 2025 capital projects and refund UPMC's Series 2020D-1. Barclays is the bookrunner.
Series 2025B, $387.3 million of fixed rate bonds, is also set to price through PEDFA, with RBC Capital Markets as bookrunner. This series will also finance capital projects and some proceeds will refund bonds from Series 2014A, which was issued through PEDFA.
Series 2025C, $35.6 million of fixed-rate bonds, is set to price through the Monroeville Finance Authority with Huntington Capital Markets as bookrunner. This series will refund UPMC's bonds from Series 2014B, which was also issued through the Pennsylvania authority.
The deal has seven co-managers. Cozen O'Connor and Turner Law are co-counsels.
Ahead of the deal, Fitch Ratings lowered its outlook on UPMC's A rating to negative from stable. Moody's Ratings affirmed its A2 rating and S&P affirmed its A rating. They both retained stable outlooks.
"This is very much a typical financing for us," UPMC Treasurer J.C. Stilley said in the investor presentation for the deal. "We basically are refunding any debt that is coming due where we can generate savings, as well as only increasing debt to the amount that will amortize in the current year."
UPMC is the biggest healthcare system and largest non-governmental employer in Pennsylvania, according to
UPMC's balanced business model — half healthcare provider, half payer — helps the company when one of those sectors is facing headwinds, CFO Fred Hargett said in the investor presentation. But the company must also weather the storms of both hospitals and insurers, as it has recently.
In 2022, as UPMC's provider division was rebounding from the pandemic and staffing shortages, the payer division's finances began to take a downturn.
Stilley and Hargett struck an optimistic tone in the presentation.
UPMC is "largely done" with the staffing shortages, Stilley said. Its $1.3 billion new tower at UPMC Presbyterian in Pittsburgh, "one of the largest construction projects going on in the commonwealth right now," is on time and on budget, he said.
Pennsylvania recently raised UPMC's Medicaid reimbursement rate, which should correct its recent struggles. And its medical and pharmacy expense trends stabilized in the second quarter of 2024, Hargett said.
But Fitch saw the situation less optimistically. UPMC has failed to meet its operating budget for three years, and ended last fiscal year with a $691 million operating loss, the rating report noted.
UPMC and the healthcare industry as a whole will face plenty of hurdles in the coming year, Fitch's Kevin Holloran said.
Tariffs and inflation could interfere with the provider division's operations and capital projects. And UPMC will begin transitioning to the EPIC medical records software this year, a process which often disrupts day-to-day operations, Holloran said.
The federal political and policy environment presents another threat to UPMC's finances, which both Fitch and UPMC are watching closely. Federal cuts to Medicaid could change the outlook of the entire healthcare sector, Holloran said.
"With all those things in the backdrop," said Fitch's Carr, "even though there's this secured rate increase on the payer side, will the provider side be able to sustain the improvement that they saw in 2024?"
The negative outlook, Holloran said, reflects the possibility UPMC could have "a bad year" despite all of its plans.
"And I don't think we want to see another bad year, three years in a row," Holloran said. "We absolutely could be wrong on that, and they could bounce right back. And if they bounce right back, we'll admit we were wrong and revise back to stable."
