Ban­ner strives to im­prove U-Ari­zona per­for­mance

Modern Healthcare - - REGIONAL NEWS - —Beth Kutscher

Phoenix-based Ban­ner Health is­sued new bonds last week to re­fi­nance older debt, in­clud­ing the short-term loans it used to fund two re­cent ac­qui­si­tions.

The 28-hospi­tal sys­tem ac­quired the Tuc­son-based Univer­sity of Ari­zona Health Net­work in a $1 bil­lion deal in Fe­bru­ary. It also bought 44-bed Payson (Ariz.) Re­gional Med­i­cal Cen­ter from Com­mu­nity Health Sys­tems in July.

The sys­tem is is­su­ing $100 mil­lion in tax-ex­empt, fixed-rate Se­ries 2015A bonds that close on Nov. 5. Pric­ing in­for­ma­tion was not avail­able at dead­line. That tranche will be used for a par­tial ad­vance re­fund­ing of its Se­ries 2007A bonds. It’s also plan­ning to take on an ad­di­tional $500 mil­lion in tax­able and tax-ex­empt debt that will be used to re­place the short-term loans as­so­ci­ated with its re­cent deals.

Ban­ner fi­nanced the UAHN trans­ac­tion with a $700 mil­lion short-term loan from in­vest­ment bank Mizuho, and it fi­nanced the Payson takeover with a $60 mil­lion line of credit from Bank of Amer­ica. It also spent $93 mil­lion, fi­nanced with a 2014 bond of­fer­ing, to open Ban­ner Fort Collins (Colo.) Med­i­cal Cen­ter in April.

Ban­ner is fo­cus­ing on how to im­prove the re­turn on its UAHN in­vest­ment, which has dragged down its own earn­ings. UAHN’s financial per­for­mance de­te­ri­o­rated be­tween the time the aca­demic cen­ter en­tered dis­cus­sions with Ban­ner and when the deal closed. “We planned for this,” Ban­ner Chief Financial Of­fi­cer Den­nis Dahlen said dur­ing an in­vestor call. “We knew that ac­qui­si­tion would be di­lu­tive in its ini­tial years.”

Ban­ner has im­ple­mented a lead­er­ship in­cen­tive plan at UAHN, in­clud­ing score­cards to track progress and la­bor pro­duc­tiv­ity tools. It also hired con­sult­ing firm Sul­li­van Cot­ter to de­sign a new physi­cian prac­tice com­pen­sa­tion struc­ture. Dahlen said Ban­ner be­lieves UAHN’s prof­itabil­ity will re­turn in 2017.

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