As­cen­sion’s $1.3 bil­lion deal

News ofMichi­gan clos­ings helps with bond sale

Modern Healthcare - - The Week In Healthcare - Joe Carl­son

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

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