WellStar Health System and Sutter Health continue the parade of not-for-profits raising money in the bond markets with separate proposed offerings totaling about $1.3 billion.
Hospital systems over the past 12 months have been selling bonds at the fastest clip since the Great Recession, taking advantage of historically low interest rates to fund delayed, post-recession expansion projects.
Total hospital issuance of tax-exempt, fixed-rate revenue bonds, for example, has reached a pre-recession high of more than $28 billion in the 12 months ending June 30, with more than a week left, HFA Partners has found.
That compares with a strong $21.1 billion from July 2015 to June 2016 and $20.5 billion in the 12-month period before that. Hospital issues totaled only $9.4 billion in the 12 months ended June 30, 2014.
Marietta, Ga.-based WellStar plans to raise about $860 million next month through bond offerings that will be used to refinance higher interest debt and earmark about $120 million for an ER expansion at its flagship Kennestone Hospital, said WellStar CFO Jim Budzinski.
About $600 million of the issue will be used to repay a short-term bank loan that WellStar took out from Bank of America to acquire five Atlanta-area hospitals from investor-owned Tenet Healthcare in March 2016, Budzinski said.
WellStar paid $575 million for the hospitals, bringing its total to 11 hospitals and giving the system a strong foothold in the growing Atlanta market.
Moody's Investors Service cited the smooth integration of those hospitals into WellStar as a factor in ascribing a strong A2 rating to the issue scheduled for July 12.
Recent issues of other not-for-profits with solid operating income have been able to attract investors at about a 4% interest rate. Kaiser Permanente sold a record $4.4 billion in bonds in May at an interest rate of 3.8%.
"We're in a historically favorable low-interest rate environment," Budzinski said.
Sacramento, Calif.-based Sutter is preparing a $440 million bond offering to refinance older debt, said Nadder Mirsepassi, Sutter's director of treasury operations and assistant treasurer.
Fitch Ratings has rated the offering a strong AA- and Moody's an Aa3.
Sutter owns 24 hospitals, and 23 of those are located in California.
The system has been spending about $1 billion annually for several years for hospitals and other projects, including building and replacing nine hospitals to date in California to meet the state's tough seismic standards to withstand earthquakes.
Sutter tends to finance capital projects with cash, then uses bond debt for partial reimbursement of the costs, Fitch said.
"The bond financing is to refund older bonds to help save interest costs. It will refund 2004 and 2008 bonds, which financed certain projects at their respective times," Mirsepassi said.
Sutter posted operating income of $370 million in 2016 on revenue of $12 billion.
