Catholic nonprofit Ascension starts $1.35B bond sale to clean up debt

Impelled by low interest rates and a favorable market for higher-rated credits, St. Louis-based Ascension Health has taken the first step in a $1.35 billion new-money and refunding deal designed to reduce the risk profile of the nation's largest nonprofit healthcare system. The sale of tax-exempt revenue bonds will reduce puttable debt, increase fixed-rate debt and reduce maximum annual debt service so that Ascension is better positioned to finance its construction and expansion plans, says Steve Gilmore, Ascension's director of capital finance.

The Catholic system, which currently operates hospitals in 19 states and the District of Columbia, wants to expand hospitals in Texas, Wisconsin, Connecticut, Michigan and Tennessee, says Gilmore.

Ascension will enter the market today, selling $670.5 million in 30-year, fixed-rate, mostly new-money bonds (tentatively set to mature serially). Later this month, the system will follow up with a $675.4 million variable-rate issue that will have a final maturity in 2050. Citi and Morgan Stanley are the underwriters and remarketing agents.

Ascension also will pay $538 million in cash to defease existing floating-rate debt. That, in combination with the bond transactions, will reduce Ascension's puttable debt to $2.6 billion from $3 billion, as well as dropping its maximum annual debt service to $228 million from $252 million. Fixed-rate debt will account for 45 percent of its overall debt portfolio, up from 30 percent.

Ascension's debt portfolio is rated AA-plus by Fitch Ratings, Aa1 by Moody's Investors Service and AA by Standard & Poor's. For the six months ended Dec. 31, 2009, Ascension had income from operations before impairment, restructuring, self-insurance trust fund investment return and nonrecurring expenses of $292 million, a 44 percent gain over the prior-year period. Operating revenue totaled $7.3 billion for the last six months of 2009, up from $6.9 billion in the prior-year period.

To learn more:
- read the Bloomberg BusinessWeek article
- here's the Bond Buyer article
- check out Ascension's earnings statement