The healthcare and higher education sectors have struggled for years. But Thomas Jefferson University is forging ahead.
The Philadelphia-based university, which runs the growing Jefferson Health hospital network, priced $1 billion of refunding revenue bonds Wednesday.
The system has dodged many of the pressures on its industries, carrying out a string of acquisitions and growing its market share in a crowded Philadelphia healthcare market.
The university/hospital hybrid's second deal this year maintained its single-A level ratings.
Jefferson is a "unicorn," said Fitch Senior Director Kevin Holloran.
"I am not advocating that a struggling health system go out and buy a liberal arts college," Holloran said. But for Jefferson specifically, the two sides "make each other stronger."
According to its
Jefferson Health has also absorbed
Wednesday's deal, issued through the Pennsylvania Higher Educational Facilities Authority, had three tranches, with components that were taxable and tax exempt, insured and uninsured, and fixed-rate and variable. Proceeds will be used for refunding, restructuring and new money.
The first tranche, $613 million of Series 2024B-1, was tax exempt and partially insured by Assured Guaranty, with yields ranging from 3.85% for the 2037 to 4.25% for the bonds maturing in 2051.
The second tranche, $251.5 million of tax-exempt Series 2024B-2, offered 5s, 5.5s and 4.375s of bonds maturing in 2054. The third tranche, $168.7 million of Assured Guaranty-insured taxable Series 2024C bonds, were priced at par, with yields ranging from 4.96% the 2025s to 5.36% for the 2037s.
J.P. Morgan was the lead manager on the deal, with BofA Securities, PNC Capital Markets and Siebert Williams Shank and Co. as co-managers. Echo Financial Products was the municipal advisor and Ballard Spahr, Andre C. Dasent, and John A. Schwab were co-counsels.
The bonds carried underlying A ratings from Fitch Ratings and S&P Global Ratings, and an underlying A3 from Moody's.
The deal is likely the last significant healthcare issuance of 2024, according to Christopher McCann, J.P. Morgan's co-head of not for profit healthcare investment banking.
Proceeds will go toward construction and renovations at the university's educational health care facilities, defeasing the debt from the recently acquired Lehigh Valley Health Network, and refunding other TJU bonds.
The turbulent market affected the deal team's plans; they removed some "smaller refundings that were no longer economically attractive," according to McCann. They ultimately priced $1.034 billion of bonds, a slight downsize from the $1.107 billion listed on the calendar last week.
Leigh Nader, managing director of healthcare and higher education at Assured Guaranty, said the insurance likely contributed to the deal's performance.
"Assured Guaranty was pleased to have participated in this important transaction for Thomas Jefferson University," Nader said. "Given our experience, underwriting capabilities, broad market acceptance and the trading value of our insured bonds, Assured Guaranty was uniquely positioned to help bring this transaction to market and reduce its borrowing cost."
Since the bonds are backed by Jefferson's revenue, its unusual structure is highly relevant to the deal's outcome.
When Fitch's analysts met with Jefferson, they tried to ascertain the core of its business model.
"Well, what are you?" Holleran asked. "Are you a hospital provider system that [was bought by] a university, or university that happens to have hospitals? By the way, you have a health plan as well, and do a whole lot of research, too."
Holleran said he found the answer telling.
"We're an organization that serves the people of Philadelphia and Southeastern Pennsylvania," was the reply of Jefferson's representatives, he said.
"So they don't view themselves as one thing or the other, but an amalgamation of everything," Holleran said.
McCann described the organization as an "integrated healthcare delivery system," with over $14 billion of annual revenue. 80% of Jefferson's revenues come from its 32 hospitals, 13% from its insurance plan, which covers more than 350,000 people, and 7% from the university, which has around 8,000 students.
Small, private
There's a chance that merging the two fragile sectors could magnify the risks. But Jefferson has leaned into both sides of its business model, purchasing Philadelphia University in 2016, Abington Health in 2015, the Einstein Healthcare Network in 2021, and the Lehigh Valley Health Network this year.
Jefferson has certainly felt some of the pressure on healthcare; it's back to breaking even now, Holloran said, but operated at a loss for the past several years. But enrollment in the university has held steady, and undergraduate applications have actually increased. The two sides actually complement each other, Holloran said.
The health network's reputation attracts students seeking medical related degrees to the university, alleviating demand problems. And when those students graduate, they become a labor pool for the system's hospitals.
Jefferson's "current capital-related ratios are somewhat thin for an 'A' rated health system," Holleran acknowledges in his rating report, but he predicts its operations will improve.
Jefferson's model would be difficult to emulate, but Holloran sees some lessons for the struggling players in its markets. Namely, that "interesting combinations can work."
There are some other hybrid universities and health systems that Holleran views as comparable to Jefferson, namely Chicago's Rush University Medical Center and the Oregon Health Sciences University. Jefferson also bears resemblance to cancer research organizations City of Hope and Fred Hutchinson, and Vanderbilt is comparable based on "the size and strength of the organization, vis a vis its markets," Holloran said.
"I think you can pick operating margin, you can pick base cash, look at cash-to-debt, and it's not the strongest A you see in either higher ed or health care," Holloran said. "But if you look at all of those peers, they bring something unique to the table in their market that makes them stronger than they appear on paper."
Jefferson Health
