CHICAGO Three Chicago-area hospital systems Advocate Health Care Network, Alexian Brothers Health System, and OSF Healthcare System have plans this summer to sell a combined total of more than $600 million of refunding bonds.
The operators of two continuing care communities, the Landing at Plymouth Place and Friendship Village of Schaumburg, also are planning deals of $160 million and $130 million, respectively. All of the transactions were up for either preliminary or final approval at a meeting of the Illinois Finance Authority board earlier this week.
Oak Brook-based Advocate won final approval for its refunding expected to price at the end of June - of up to $250 million of debt sold in 1997 and 2000. Citigroup Global Markets Inc. is the underwriter and Katten Muchin Rosenman LLP is bond counsel.
The Chicago regions largest health care network is planning on issuing 17-year variable-rate bonds and then swapping the debt to a synthetic fixed rate. It is also anticipated that at least part of the deal would carry triple-A insurance, according to IFA documents.
The system is rated AA-minus by Fitch Ratings, Aa3 by Moodys Investors Service, and AA from Standard & Poors. Standard & Poors last month affirmed its rating on a total of $550 million of outstanding debt. Analysts called the system a well-managed one that enjoys the leading market position among all the hospitals serving Chicago and the surrounding suburbs.
Advocates credit strengths include its large medical staff, strategically located facilities, and strong financial position and management. The system also has a strong 5.6 times coverage level on debt service, ample liquidity, and modest debt leverage. It operates eight acute care hospitals, including three in Chicago.
Approval of the deal followed testimony from the Service Employees International Union alleging that Advocate should not be allowed to proceed with the deal due to several factors including Advocates own admission in its financial reports that, like other hospital systems nationally, its billing and collection practices have come under local, state, and federal scrutiny. The scrutiny could lead to a challenge of Advocates tax-exempt status, the system reported in its financials.
The union also faulted Advocate for not disclosing in public IFA documents that its pricing and collection practices are the subject of a pending class action lawsuit.
We recommend that the IFA exercise its fiduciary duties in an appropriate and prudent manner by deferring final approval while IFA determines the facts in this matter, Bill Dempsey, co-director of SEIUs capital stewardship program, said in a letter to IFA board chairman David Gustman.
The IFA board recently rejected a similar recommendation from the American Federation of State and Municipal Employees which called on members to delay approval of a Resurrection bond sale.
Locally, challenges have focused on nonprofit hospital systems exemption from property taxes. Nationally, both systems were among 10 that Sen. Charles Grassley, R-Iowa, recently requested information from regarding their charitable activities.
Advocate could not be reached for comment yesterday. Both systems have defended their policies and dismissed the unions actions as attempts to gain leverage in their efforts to organize workers.
Alexian Brothers received preliminary approval for the sale of up to $265 million of debt to refund its 1999 bonds with the goal of achieving about $19 million in present-value savings. Merrill Lynch & Co. is the underwriter, Kaufman, Hall & Associates Inc. is the financial adviser, and Jones Day the bond counsel.
The system plans to structure the securities in a floating-rate mode and will convert the debt to a synthetic fixed rate with a forward interest rate swap. The sale is scheduled for the second week of August, according to financial adviser Kenneth Kaufman.
Citing consistent balance sheet improvements in recent years, Moodys earlier this week upgraded the underlying rating on the systems $414.5 million of outstanding debt to A3 from Baa1.
The hospital system has experienced steady gains in its operating cash flow since its 1998 acquisition of St. Alexius Medical Center, ending fiscal 2004 with $73.1 million compared to $39 million in 1998 after its expanded to a two-hospital system. Its solid cash flow figures have permitted the system to invest about $350 million into facilities over the last four years while cash on hand has remained steady at 186 days. An expansion of services and growth in its market areas have helped boost admissions volume by 9.3% for the first quarter of fiscal 2005.
Analysts said concerns they have include competition Alexian faces in a crowded market, and the fact that its planned capital spending could limit growth of cash reserves. In addition to its two acute care hospitals in the northwest suburbs of Chicago, Alexian operates senior centers and nursing homes in Missouri, New Jersey, Tennessee, and Wisconsin.
Peoria, Ill.-based OSF received preliminary approval for its sale of $110 million of variable-rate bonds that will advance refund debt sold in 1999. A portion may be swapped to a synthetic fixed rate. Merrill Lynch is the underwriter and Jones Day the bond counsel.
The system operates five hospitals and one continuing care and nursing home center in Illinois and another hospital in Michigan. OSF carries ratings of A from Fitch and Standard & Poors and A2 from Moodys.
The IFA board gave preliminary approval to the Landing at Plymouth Places plans to sell up to $160 million of new-money debt to finance the redevelopment of its LaGrange Park campus, a continuing care retirement community. The unrated bond issue will be underwritten by Ziegler Capital Markets Group. Jones Day is the bond counsel.
The board gave final approval to Friendship Village of Schaumburgs plans to sell $130 million of variable-rate bonds to refund bonds sold in 1994 and 1997 and raise new-money proceeds for the construction of a new residential independent living complex and a multipurpose community center on its campus northwest of Chicago. Ziegler is the underwriter and Jones Day the bond counsel.
