DALLAS - To finance a major expansion, the Texas Children's Hospital will issue $354 million of debt, including fixed and variable rate bonds.
Three series of bonds are expected to price May 12, with Wells Fargo Securities and JP Morgan as senior managers. In addition to the $354 million of publicly offered debt, TCH will privately place another $100 million. Harris County Cultural Education Facilities Finance Corp. is conduit issuer.
The largest series will be $194 million of fixed-rate bonds maturing through 2042. Two series with a combined value of $110 million will be variable-rate in a floating-rate mode, with another $50 million with rates set in windows mode.
Ponder & Co, a Chicago-based healthcare consulting firm, is financial advisor. Bracewell & Giuliani is bond counsel.
Proceeds will fund a new hospital in The Woodlands north of Houston, add additional floors to the Special Care Tower at Texas Medical Center, and renovate the West Tower. The remaining proceeds will refinance Series 1999B-1 variable rate bonds. TCH also plans to convert its Series 2008-2 bonds to direct placement debt.
The bonds carry ratings of Aa2 from Moody's Investors Service, and AA from Standard & Poor's and Fitch Ratings.
"Strong liquidity, a core competency in managing large-scale capital projects, and proven fundraising abilities support the Aa2 rating," Moody's lead analysts Lisa Goldstein wrote. "These attributes are balanced by the large increase in leverage and impact on pro forma debt measures."
Kevin Holloran, lead analyst at S&P, said Children's financial performance is indicative of a notch higher AA-plus rating but that the debt plans are a constraint.
The $50 million of variable-rate bonds in the windows mode carry short-term ratings of P-1 from Moody's, A-1-plus from S&P and F1-plus from Fitch.
With more than $2 billion of total operating revenue, TCH's total capital budget, including $76 million to $86 million of routine projects, is $1.65 billion over the next five years, according to Moody's. The largest share of capital spending is expected in the next two years.
Fitch Ratings considers TCH's debt burden "manageable" with maximum annual debt service comprising 2.2% of total revenue in fiscal 2012.
Along with debt, the healthcare system expects to raise $350 million from donors and provide the balance of outlays from unrestricted cash and investments.
TCH will have about $984 million in debt outstanding after this deal, according to Moody's, with 42% fixed rate and 58% in different variable rate structures.
Like other children's hospitals, TCH is highly exposed to Medicaid reimbursement, which accounts for over 50% gross revenues, according to Fitch.
TCH's main 650-bed hospital is one of the major facilities in Houston's sprawling Texas Medical Center, considered the largest medical campus in the world.
The Woodlands Campus in Montgomery County broke ground in 2014 and is expected to be completed in 2017.
