Ascension’s $1.3 billion deal
News ofMichigan closings helps with bond sale
Investors and analysts last week looked favorably on the first half of a $1.3 billion bond offering for Ascension Health, bolstered in part by the not-for-profit healthcare giant’s plans to close and consolidate operations in Southeast Michigan while strengthening operations in growth markets.
Ascension received an average interest rate of 4.825% on $670 million in fixed-rate municipal bonds that were offered March 10 through financing authorities in five jurisdictions in Connecticut, Michigan, Wisconsin, Rutherford County, Tenn., and Tarrant County, Texas, where the Roman Catholic provider is undertaking or refinancing debt related to construction and expansion projects. The bonds mature serially over 30 years, with rates running between 4.77% and 5%, said Tony Speranzo, chief financial officer and senior vice president with Ascension.
“It’s a credit to our organization, in terms of the reception we get in the market, if you will,” Speranzo said. “It’s also people looking at the long-term nature of municipal bonds.”
Last week’s offering was the first half of an overall strategy at Ascension to reduce exposure to variable-rate debt that can be put back by investors on a weekly basis, while converting more bonds to fixed rates when market conditions were favorable, Speranzo said. Later in March, Ascension is expected to go to market with another $675 million in variable-rate debt issued through the Michigan State Hospital Finance Authority that will convert roughly $300 million in traditional seven-day putable debt into a new type of offering that gives the system seven months to refund put bonds in the event that they cannot be remarketed.
After this month’s offerings and a related series of refinancing of older debt, about 38% of Ascension’s $4.2 billion debt portfolio will be made up of fixed-rate debt, up from 26%, hedging against the risk of rising inflation while taking advantage of low rates driven by investor interest in healthcare bonds.
“This is all supported by our own liquidity; we have no bank underneath supporting us,” Speranzo said. “This significantly reduces our event risk.”
Event risk, or risk from unexpected events, has emerged as a major concern for systems that rely on short-term, variable-rate demand bonds. This month’s conversions will leave Ascension with $497 million in seven-day demand notes, down from $792 million.
At the same time, the system is increasing its use of Citibank’s branded Windows debt products, whose share of Ascension’s debt portfolio will rise to $318 million from $82 million. The Windows bonds still feature the seven-day period in which the bonds can be put back, but then give the healthcare system up to seven months to remarket the