Another big deal from a major borrower is moving forward after the Rochester, Minnesota, City Council last week approved a conduit bond sale for the Mayo Clinic, whose hospital in the city is ranked the best in the country by U.S. News & World Report.
Rochester will issue nearly $400 million of Series 2025 bonds next week for the medical center based in the city. The deal includes $97.9 million of Series 2025A fixed-rate revenue bonds; $91.4 million of Series 2025B seven-year put bonds; $100 million of Series 2025C variable rate bonds; and $100 million of Series 2025D variable rate bonds.
The proceeds will finance the Rochester arm of Mayo's tri-state Bold. Forward. Unbound. initiative, a sweeping expansion and modernization project that also includes its campuses in Florida and Arizona.
"The initiative is well underway at all of our campuses," Mayo CFO Dennis Dahlen told The Bond Buyer. "It includes multiple buildings, but the main parts of it are a hospital and integrated oncology building expansion in Florida that is mid-construction … and scheduled to be completed by 2027. We've got the Rochester project at $4.5 billion. And we just announced the $1.9 billion Arizona project that reimagines that campus.
"So if you put all of those together, as well as the other things that we're doing that are rounding out those projects, we've got approaching $7 billion in construction underway," he said. "These are long-term projects, some as long as seven years out, so they don't complete until 2031 and 2032."
Dahlen said the Rochester project involves constructing both hospital and office space, "and flexible space between those two.
"The goals of Bold. Forward. Unbound. are to create space that can adapt with us as we explore the frontiers of clinical practice," he said. "We do foresee a future where definitions such as inpatient or outpatient, ambulatory or virtual or digital, start blurring together into a much more seamless medical experience. The buildings are designed to adjust with that transformation."
Mayo intends over the next six or seven years to go to market each year or every other year with a few hundred million dollars of additional indebtedness, Dahlen said.
"We don't plan to finance the majority of the Bold. Forward. Unbound. work with debt, but a significant portion of it is," he said. "We will be issuing additional debt — it won't be solely focused on the Rochester project; it will be focused on the others as well — but we'll be issuing debt in different venues to finance the project in all three sites."
The bonds are rated Aa2 by Moody's Ratings and AA by S&P Global Ratings. The outlook is stable.
Robert Junqua of BofA Securities said in an
BofA Securities, Barclays and JP Morgan Securities are co-lead managers on the deal. Dorsey & Whitney is bond counsel. Kaufman, Hall and Associates is the financial advisor.
The Series 2025A bonds are subject to redemption and purchase in lieu of redemption prior to their respective maturity dates. The bonds will not be subject to optional tender during the initial fixed period.
The
The Series 2025B bonds are subject to optional redemption, extraordinary optional redemption, and purchase in lieu of optional redemption prior to their respective maturity dates.
The pricing date is April 2.
The bonds are limited obligations of the city, payable solely from the revenues derived under the loan agreement.
The city's right to receive payments from Mayo Clinic under the loan agreement is assigned to the trustee as security for the bonds.
S&P noted that Mayo has enterprise characteristics suggestive of a higher rating but said its heightened capital spending will constrain the rating over the next few years.
"The long-term rating on Mayo Clinic's debt reflects our view of the clinic's exceptionally strong enterprise profile and healthy financial profile," S&P credit analyst Suzie Desai said in a statement.
But S&P cautioned that given the size and scale of the capital projects Mayo is undertaking, a sharper-than-anticipated decline in unrestricted reserves or sustained cash flow could trigger an outlook revision to negative.
Moody's noted that the Series 2025C variable rate bonds are supported by a bank standby bond purchase agreement.
The rating agency also said the bonds are an unsecured obligation of Mayo Clinic, solely, and not of any of its operating subsidiaries.
"We believe a Restricted Affiliate/Corporate Model obligation provides bondholders less protection than a joint and several obligation," Moody's said.
"The corporation anticipates that the project, once completed, will enhance employment in the city … and will enhance the corporation's ability to provide quality health care services at reasonable cost," it reads.
Rochester City Council members did not respond to requests for comment.
According to the
Mayo had a total of $4.7 billion of debt at fiscal year end 2024.
