Ready, aim, finance.
Healthcare providers that have invested immeasurable amounts of sweat equity perfecting integration and acquisition strategies finally are issuing new debt to deploy those plans.
For instance, in one of the largest deals of the quarter, Milwaukee-based Aurora Medical Group raised $140 million for the expansion of its network of 74 clinics and 350 employed physicians.
A total of 48 "new money" issues representing $2.3 billion in new tax-exempt debt were sold in the three months ended March 31, according to Securities Data Co., a Newark, N.J.-based financial services firm. Those deals represented 61% of the $3.7 billion in healthcare bonds issued in 83 deals during the quarter.
The balance represented refinancings and refundings or deals combining refundings with new financings.
In the year-ago period, new-money deals represented more than half the $2.2 billion in new tax-exempt healthcare debt sold in 53 issues. According to Securities Data, healthcare issuers completed 38 new-money deals for $1.4 billion in that quarter.
Overall, new tax-exempt healthcare bond volume rose 67.2% during the first quarter of 1996.
"People aren't putting new capital so much into bricks and mortar as they are adapting to a new environment and moving into physician ventures, such as Aurora," said Thomas D. Whalen, a vice president in the public finance department of Smith Barney, the top underwriter of the first quarter.
Aurora Medical Group's Jan. 12 bond sale raised $129.9 million for acquiring, building, improving and equipping clinics in Wisconsin. Thebalance will be used to pay interest, debt issuance costs and bond insurance premiums.
"They wanted to accomplish two things," Whalen said. "One was to complete what I think is the largest physician practice financing that's ever been done." A second goal, he noted, was to have each business line pull its own weight.
Although the not-for-profit medical group lost $11.2 million on revenues of $97.3 million for the 10 months ended Oct. 31, 1995, the group eventually is expected to be a significant moneymaker for its parent corporation, Aurora Health Care, Whalen said.
In the meantime, Aurora Medical Group needed to lean on the credit strength of its parent. The eastern Wisconsin health system signed a "subordinated guarantee agreement" obligating Aurora Health Care to pay the medical group's principal and interest payments and make debt service reserve fund payments.
Because new-money issuers are less sensitive to interest rates than refunders, and because many healthcare providers need capital to implement managed-care strategies, more new financings are likely to come to market in the coming months, Whalen predicted.