The Illinois Finance Authority signed off on $1.5 billion of borrowing led by two acquisition-related financings: City of Hope’s purchase of for-profit Cancer Treatment Centers of America and University of Chicago Medicine’s purchase of majority interest in four Illinois-based Adventist hospitals.
The IFA board also signed off on transactions for the Shedd Aquarium, a Catholic high school, and a new PACE financing.
The IFA board at its November meeting approved a taxable direct placement of up to $650 million for COH HoldCo Inc., whose parent is the not-for-profit City of Hope. The California-based cancer research and treatment organization will use the financing to take out a taxable bridge loan that financed its purchase of Cancer Treatment Centers of America facilities in Illinois, Arizona and Georgia.
City of Hope
Bank of America is purchasing the bonds at a variable rate tied to the SOFR Index plus 90 basis points. Ratings will be assigned after closing. The obligated group has long-term underlying ratings in the single A category from Moody’s Investors Service and S&P Global Ratings.
City of Hope, a National Cancer Institute-designated comprehensive cancer center, closed on its acquisition of the Cancer Treatment Centers of America in February.
The network of oncology hospitals and outpatient care centers gives City of Hope what it calls “one of the largest geographic footprints in cancer research and treatment, providing cancer patients with timely access to exceptional care, clinical trials and leading-edge innovation.”
“With the completion of this acquisition, City of Hope and Cancer Treatment Centers of America are combining complementary strengths,” Robert Stone, president of City of Hope, said in a statement.
City of Hope was founded in 1913 and in addition to treatment conducts research on cancer, diabetes and other life-threatening illnesses. City of Hope’s system includes its main Los Angeles campus, a network of clinical care locations across Southern California, a new cancer center in Orange County, and the newly acquired Cancer Treatment Centers.
The board also approved University of Chicago Medicine’s up to $375 million tax-exempt financing.
Ahead of the sale, Fitch Ratings and S&P Global Ratings affirmed University of Chicago Medicine’s AA-minus ratings and stable outlook. After the sale, the system will have $1.3 billion of debt.
Proceeds, along with an expected premium, will finance capital projects and UCM’s acquisition of a controlling interest in Advent Health’s Midwest assets that include Adventist Bolingbrook Hospital, Adventist GlenOaks Hospital in Glendale Heights, Adventist Midwest Health La Grange Hospital and Adventist Midwest Health Hinsdale Hospital.
“The rating reflects the strengthening of UCM’s enterprise profile, as seen by the organization’s solid position in the highly competitive metro Chicago market, supported by the organization’s excellent medical staff and strong quality indicators,” said S&P analyst Marc Bertrand.
UCM in recent years has expanded its ambulatory network and plans to strategic capital investments aimed at bolstering its competitive position in Chicago and northwest Indiana.
Like most hospitals and systems across the sector, UCM’s margins this year have suffered a setback after rebounding last year from early COVID-19 pandemic hits. Labor and wage pressures and supply costs and inflation as well as the omicron variant surge have sunk margins across the sector damaging hospitals’ days cash on hand numbers and debt service coverage ratios.
The ratings benefit from the system’s strong market presence supported by current and future capital projects along with the expected benefits associated with the addition of a majority stake in AMH, and the system’s academic and research relationship with University of Chicago.
Thin balance sheet metrics, increased leverage, and reliance on special revenue streams like the state’s provider tax program that leverage federal Medicaid dollars and Medicare payments for graduate medical rating pressure the rating.
“Like the rest of the U.S. hospital sector, UChicago Medicine is facing considerable operating pressure in 2022…nevertheless, the system’s operating margin held up well compared to many industry peers, as UChicago Medicine focused on flexing expenses to match revenue fluctuations,” Fitch said.
The system recorded volume gains in many key areas in fiscal 2022, including observation stays, outpatient surgeries, and outpatient visits.
“While the current debt issuance dilutes the balance sheet, UChicago Medicine’s financial profile is strong and capital-related ratios should remain comparatively favorable,” Fitch said.
The system had $3 billion of revenues in fiscal 2022 from its flagship University of Chicago Medical Center on the system’s campus on Chicago’s south side and Ingalls Memorial Hospital in suburban Harvey. The planned acquisition of AdventHealth’s Chicagoland assets will add nearly $1 billion in operating revenue to the system.
Goldman Sachs is senior manager. Loop Capital Markets and RBC Capital Markets round out the syndicate.
The COVID-19 pandemic has influenced the ongoing trend of hospital sector consolidation initially putting some mergers or acquisitions on hold with some facilities now shifting strategies that involve greater partnerships, expanding types of services as well as leveraging scale and improving balance sheet metrics.
The IFA board also signed off on the Shedd Aquarium Society’s up to $100 million new money and refunding. Shedd intends to tap $52 million of the authorization and will price the bonds next week, according to an investor presentation.
JP Morgan is the senior manager and Loop and Siebert Williams Shank LLC are co-managers.
Proceeds will help fund the John G. Shedd Aquarium’s “Centennial Project” that calls for major renovations that will expands its on-site capacity beyond two million guests annually. The Shedd’s plans also include work on an off-site building acquired to accommodate animal welfare needs.
The aquarium unveiled the $500 million centennial project early this year and expects to complete it ahead of its 100-year anniversary in 2030. The “new strategic vision will prepare Shedd for the next 100 years, transforming the aquarium’s historic galleries, accelerating aquatic science and research, and equitably expanding access to nature for all,” the aquarium said.
©Shedd Aquarium/Brenna Hernandez
About half of the $500 million investment will finance programs and partnerships onsite and offsite including field-based research and science portfolios centered on restoration, rewilding, and rescue.
The remaining spending will focus on the physical improvements to the historic Beaux-Arts-style building with plans to modernize the aquarium galleries and experience, enable greater accessibility, enhance animal habitats, and restore architectural features such as the opening of original windows that provide views of the city skyline and Lake Michigan.
Total construction costs of $268 million rely on the bonds, $130 million from fundraising, and cash-on-hand and an endowment draw.
S&P rated the bonds AA-minus and stable in a Tuesday report.
“The rating reflects the Shedd’s position as one of the most attended aquariums in the U.S. with expectations of almost two million patrons in 2022, in line with attendance prior to the pandemic,” said S&P analyst Sean Wiley. “In addition, the rating reflects a history of solid operating performance outside of pandemic-affected fiscal 2020 and available resources that have grown considerably over the past five years and are in-line with similarly rated peers.
DePaul College Prep Foundation received approval for its up to $76 million financing that will refund mortgage debt of $46.8 million on its facility on Chicago’s north side and construct a connected new 36,777 square foot academic wing.
The new wing will include 22 classrooms, science labs and additional dining hall space. Proceeds may also be used to finance athletic facilities.
“This facility expansion will accommodate enrollment growth and eliminate over-crowded classrooms. The refinanced debt will allow DePaul College Prep to have predictable and steady facility costs over the next 30 years,” according to IFA documents.
The board also authorized the issuance of up to $250 million of bonds under the Property Assessed Clean Energy, or PACE program, on behalf of capital provider JPMorgan Chase Bank NA.
The state’s goal is offering commercial Property Assessed Clean Energy program financing as an affordable alternative for energy efficiency, renewable energy, water conservation, resiliency improvements and other green projects. The bonds are repaid with local real estate taxes and assessment payments agreed to the property owner and amortized over the useful life of the project that ranges from five to 30 years.
