Alexian Brothers Health System's increasing debt burden has prompted Moody's Investors Service to downgrade the system's bond rating to Baa1 from A2.
Alexian Brothers, based in Elk Grove Village, Ill., plans to issue $270 million of new debt next month in connection with its $281 million purchase of Hoffman Estates (Ill.) Medical Center from Columbia/HCA Healthcare Corp. The purchase price includes $10 million for 94-bed Woodland Hospital, a psychiatric hospital, which is also part of the deal with Columbia.
The deal is structured as a swap. Alexian Brothers is giving Columbia its 192-bed San Jose, Calif.-based hospital for an undisclosed amount of cash (Aug. 24, p. 18).
Although New York-based Moody's sees Alexian Brothers' focus on its core market in northern Illinois as a positive, the amount of new debt it is assuming will "significantly weaken" the system. Outstanding debt will increase to about $380 million from $156 million, and annual debt service will rise to $26 million from $14 million. Put another way, system debt will represent a "highly leveraged" 9.7 times cash flow, up from 4.3 times cash flow, Moody's says.
Those negatives are offset by expected improvement in Alexian Brothers' ability to negotiate with managed-care organizations on behalf of its Hoffman Estates facility and its Elk Grove Village flagship. Located just 10 miles apart, the suburban Chicago hospitals provide an opportunity to consolidate clinical services and administrative overhead, the agency says.
