Few organizations can promise that they'll be around in 100 years, so most issuers of century bonds have been 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. Oncology is one of the system's growing service lines, he said, so the system is breaking ground on a new cancer center. It also plans to build a new hospital on the west side of Cleveland and is expanding in Florida, where it has plans for a new cancer and neurology center.
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.
“I don't know of too many not-for-profits that have that sort of long-range vision,” Belmont said. “The Cleveland Clinic is unique in that regard.”
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.
Taxable bonds also give not-for-profit borrowers more flexibility with how they use the proceeds, she added.
Lenders and borrowers have confirmed that the debt markets in 2014 have been wide open to healthcare providers looking to fund new projects. But the unique terms of century bonds do carry some risks.
The bonds are significantly more expensive for a borrower to redeem before their maturity date. “We certainly wouldn't expect more healthcare providers to issue these bonds,” Martin said. “One major factor is the longevity of the healthcare sector.”
Follow Beth Kutscher on Twitter: @MHbkutscher
