Memorial Sloan-Kettering Cancer Center has received high grades for a $550 million bond issuance expected Jan. 12. The taxable, unsecured bonds have a maturity date of 2064 and will fund capital projects.
Fitch Ratings assigned an AA to the new issue; Moody’s Investors Service, Aa3; and Standard & Poor’s, AA-. All three ratings put the offering at the low end of high-grade territory.
In a report released Wednesday, Fitch commended the New York-based cancer center’s strong balance sheet and operating cash flow.
Memorial Sloan-Kettering reported a 22.8% increase in its operating surplus in its most recent earnings report for the third quarter. The growth came from better rates on its managed-care and other contracts, a 3.6% increase in outpatient volume, and a small bump in inpatient days, which amounted to an increase of less than 1% but reversed the previous year’s volume decline.
The cancer center is in the midst of a $3.5 billion capital campaign and had reached 97.9% of its fundraising goal as of Sept. 30, according to Fitch. The latest bond offering will help fund a number of new outpatient sites and a regional growth strategy.
In October, for instance, Memorial Sloan-Kettering opened a 100,000 square-foot ambulatory facility in Harrison, N.Y., a Westchester County suburb about 25 miles from its Upper East Side campus in Manhattan.
Its largest pending project is a $1 billion, 760,000-square-foot ambulatory-care facility that is expected to open on East 74th Street in 2019. The cancer center also is spending $96 million to expand ambulatory surgery care on East 61st Street; $111 million on a laboratory medicine building; and at least $162 million to add regional care sites in Monmouth, N.J. and Nassau, N.Y. Those projects are expected to be complete in 2016.
Moody’s similarly pointed to Memorial Sloan-Kettering’s improved operating performance in fiscal 2014, but said the new projects will take time to generate revenue. In addition, its debt load is at a “maximum tolerance point” with a ratio of 83% debt-to-operating revenue, at least until the new facilities start generating revenue.
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