CHICAGO -- Nebraska Methodist Health System plans to enter the market next week with $210 million of revenue bonds in a transaction that will finance a new women's hospital in a fast-growing section of Omaha as well as restructure a large chunk of the system's outstanding debt.
It is the system's first bond sale since 1997.
On May 8, Methodist plans to sell $210 million in uninsured fixed-rate revenue bonds issued through the Douglas County Hospital Authority No. 1 and No. 2. The debt will be divided into a $40.1 million series and a $161.7 million series. The revenues of the system's obligated group will be used to cover payments under a loan agreement with the county hospital authorities, according to bond documents.
The deal includes $144.5 million in new money that will be used to finance the new women's hospital - estimated to cost $100 million - as well as an affiliated medical office building estimated to cost $30 million. The deal also includes $12 million that will be used to reimburse Nebraska Memorial Hospital for costs of building a parking garage on the medical campus.
The Methodist system operates the 440-bed Nebraska Methodist Hospital in Omaha and the 236-bed Jennie Edmundson Memorial Hospital in Council Bluffs, Iowa. The system also includes a physicians' group, a medical services organization, and a foundation.
The new hospital will be built in western Omaha near one of the city's main transportation thoroughfares and will establish the system's second hospital in the local market.
'This is a really exciting project that they expect to change the landscape of health care in Omaha,' said Lisa Conley, a director at Citi, which is lead manager on the deal. It is located in a 'high-growth area with a young population who uses women's hospital services. It's a major focus of Methodist now and it will be able to build upon its market position in this new facility.'
Ameritas Investment Corp. is co-manager on the transaction. Omaha-based Kutak Rock LLP is bond counsel. There is no financial adviser.
The upcoming transaction will restructure $30.8 million of the system's roughly $42 million of fixed-rate outstanding debt originally issued in 1997. Officials expect to achieve savings by stretching out the debt service schedule to 40 years, while the 1997 bonds were scheduled to mature in 2017.
The 1997 debt was insured by MBIA Insurance Corp. and officials plan to write off that policy after next week's transaction. Fitch Ratings recently downgraded MBIA to AA from AAA, though the insurer retains triple-A ratings from Moody's Investors Service and Standard & Poor's. All three agencies give it negative outlooks. Hospital officials decided against insuring the new fixed-rate debt.
With the refunding, the system will take out all its publicly traded debt issued through the Nebraska Investment Finance Authority, though the agency also holds about $8 million in privately placed debt for the system, according to chief operating officer Steve Clements. The system's remaining $12 million of debt was issued through the Iowa Finance Authority.
As a conduit issuer, the NIFA requires ratings of double- or triple-A, Clements said.
Methodist's 2008 bonds have been assigned an A-minus with a stable outlook by Standard & Poor's. Fitch Ratings is expected to rate the debt in the next few days. In late 2005, Fitch cut the underlying rating on Methodist's debt to A-minus from A.
Standard & Poor's analyst Keith Dickinson praised the system for improved financial results over the last few years - with net operating margins of 3.1% and 2.4% in fiscal 2007 and 2006, respectively - as well as a strong physician strategy and a 26% market share in the Omaha and Council Bluffs regions.
'Credit concerns include limited liquidity due to considerable investment in plant, flat volumes, increased competition in the consolidated Omaha service area, and construction plans,' Dickinson wrote in a rating report.
But most of the system's investments were paid in cash, and it enjoys a low debt burden and maximum annual debt service coverage of 4.6 times in fiscal 2007, Dickinson added.
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