CommonSpirit Health’s proposed $ 2 billion bond funding could make it the latest healthcare system to rush to complete funding ahead of the November presidential election and the market uncertainty surrounding these monumental events.
The Chicago-based system said it plans to lock in funding, depending on market conditions, in the fourth quarter of 2020. The bulk of the deal will be to refinance existing debt, but the package will also involve issuance. a new taxable and tax-exempt debt. , including $ 750 million to finance capital projects.
Many healthcare systems are issuing new debt or refinancing themselves now given historically low interest rates. There is also a rush to get these deals done ahead of the presidential election, as events like this tend to trigger uncertainty in the market, said Ken Gacka, senior director and analytical director of healthcare ratings at S&P Global Ratings. .
“A lot of people just want to come in before all of this happens,” he said.
Phoenix-based Banner Health, for example, on Friday announced an issue of around $ 600 million to refinance existing bonds.
The CommonSpirit bond offering is the next step in building on the restructuring and refinancing of the healthcare system in 2019, which brought the two systems that merged to form CommonSpirit under the same credit structure, the health system in a press release.
“While CommonSpirit currently has strong cash reserves, bond offerings are an important means of providing the organization with long-term committed capital, which is especially important today given the financial challenges that all vendors are encountering due to the COVID-19 pandemic, ”the system says.
Considering the size of CommonSpirit – 142 hospitals and nearly $ 21 billion in revenue in fiscal 2019 – a $ 2 billion package is not a surprising number, Gacka said. “All things considered, this is not a significant increase in debt,” he said. “It’s mainly refinancing.”
CommonSpirit said in the advisory that its plans could still change, and the announcement is not a guarantee.
CommonSpirit’s total debt stood at $ 14.8 billion as of March 31, 2020, compared to $ 13.5 billion as of June 30, 2019. Its debt to capitalization was 52.8% as of March 31, compared to 48.4% as of June 30, 2019.
Just under 70% of healthcare system debt was traditional fixed rate bonds as of March 31, marking the end of CommonSpirit’s third quarter of fiscal 2020.
CommonSpirit’s finance team told analysts and investors during the system’s third quarter call in May that the system was not at risk of violating any of its debt service commitments by the end of its fiscal year. 2020, or June 30. A spokesperson said the healthcare system is planning to do so. will soon publish its results for fiscal 2020.
Dan Morissette, CFO of CommonSpirit, said on the call that executives of the system have weekly liquidity meetings, where they review investment performance and compliance with covenants.
“Unless there is a calamity that we do not anticipate, we believe that we are meeting all of our commitments,” he said.
When preparing the system’s financial statements for its fiscal year 2020, management may decide to classify COVID-19-related expenses as extraordinary items, thereby omitting them from its debt service calculation, said Jean Ham, vice -President and Deputy Treasurer of CommonSpirit, on the third. -Call of investors of the quarter. When calculating its compliance with debt service covenants, CommonSpirit’s bond agreements allow the system to exclude extraordinary items, such as investment losses.
CommonSpirit reported a third quarter operating loss of $ 145 million due to a reduction in patient volume as the nonprofit system braced for the COVID-19 pandemic. This was right after the system posted its first operational gain since its merger in February 2019.
