Cleve­land Clinic’s 100-year bonds of­fer ‘per­ma­nent cap­i­tal’

Modern Healthcare - - REGIONAL NEWS - —Beth Kutscher

The Cleve­land Clinic will be­come the first not-for-profit health sys­tem to fi­nance its long-term projects with bonds that don’t ma­ture for 100 years.

The cen­tury bonds will al­low the 11hos­pi­tal sys­tem to bring in a new group of in­vestors look­ing to add longer-dated debt to their port­fo­lios. They priced last week at par with all-in yield of 4.858%. About 40 in­vestors par­tic­i­pated in the of­fer­ing, and the strong in­ter­est al­lowed the sys­tem to tighten pric­ing to 160 ba­sis points over the 30-year trea­sury.

Steve Glass, the Cleve­land Clinic’s chief fi­nan­cial of­fi­cer, said the bonds are “as close to per­ma­nent cap­i­tal as you can get.”

Few or­ga­ni­za­tions can prom­ise that they’ll be around in 100 years, so most is­suers of cen­tury bonds have been col­leges and univer­si­ties, which can draw on their long his­to­ries and strong reputations to at­tract in­vestors.

The Cleve­land Clinic doesn’t cel­e­brate its cen­ten­nial un­til 2021. But the sys­tem does have some ad­van­tages: a strong brand, highly spe­cial­ized ser­vices and a pow­er­house fundrais­ing depart­ment, ac­cord­ing to Moody’s In­vestors Ser­vice. The bonds will rep­re­sent 12% of its to­tal debt, ac­cord­ing to the agency, which has an Aa2 rat­ing with a sta­ble out­look on the sys­tem.

Glass said the sys­tem is look­ing to spend the pro­ceeds on new part­ner­ships (he de­clined to elab­o­rate) and also has a num­ber of projects in the works. He said the sys­tem is break­ing ground on a new can­cer cen­ter, plans to build a hos­pi­tal on the west side of Cleve­land

and is ex­pand­ing in Florida.

The tax­able bonds are more likely to ap­peal to in­surance com­pa­nies, pen­sion plans and en­dow­ments, said David Bel­mont, chief risk of­fi­cer at the Com­mon­fund, which man­ages nearly $25 bil­lion in funds, mostly for not-for-profit clients.

Low in­ter­est rates also have made it more ap­peal­ing for not-for-profit bor­row­ers to is­sue tax­able bonds rather than tax-ex­empt debt. “Par­tic­u­larly in this en­vi­ron­ment, they can is­sue at very low in­ter­est rates and re­ally lock in those rates for a long time,” said Lisa Martin, an an­a­lyst at Moody’s.

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