Bonds

Downgraded Texas pediatric hospital system sets $222M bond sale

Texas Children’s Hospital, which was hit with rating downgrades this summer in the wake of operating losses, is moving ahead with an approximately $222 million revenue bond sale this week. 

The tax-exempt, fixed-rate debt issued through the Harris County Cultural Education Facilities Finance Corp. is scheduled to price Thursday. Proceeds are earmarked for capital projects and equipment and the purchase and cancellation of $79 million of Series 2019B bonds. 

The flagship facility for Texas Children’s Hospital located on the Texas Medical Center campus in Houston. The health system, which was downgraded a notch to AA-minus this summer by Fitch Ratings and S&P Global Ratings, is scheduled to price about $222 million of revenue bonds this week.

Bloomberg News

Ahead of the sale, ratings for Houston-based Texas Children’s were cut one notch to AA-minus with stable outlooks by Fitch Ratings in July and in August by S&P Global Ratings, which said fiscal 2024 is on track to be the system’s worst performing year on record.

Moody’s Ratings affirmed its Aa2 rating and stable outlook in July. Texas Children’s, the nation’s largest pediatric integrated delivery system, had nearly $1 billion of long-term debt outstanding as of June 30. 

In an investor presentation for the deal, hospital Chief Financial Officer Weldon Gage said several steps are being taken to reduce expenses by about $160 million. 

“We’ve put in place a plan of action to mitigate the financial challenges we faced this fiscal year and our balance sheet remains strong,” he said. “We believe our history of executing on our strategic initiatives, the depth and breadth of our outstanding clinical services, and our track record of market share leadership all combined to position the system for long-term success.”

In an Aug. 6 Federal Worker Adjustment and Retraining Notification Act notice to the Texas Workforce Commission, the hospital said “changing business needs” will lead to the permanent layoff of 997 workers at its Houston location in October, November, and June.

Gage said membership in the Texas Children’s Health Plan, which offers coverage to children and pregnant women through Medicaid and other programs, has stabilized after dropping about 30% with the end of the pandemic-related public health emergency.

Days cash on hand for the system, which includes three hospitals in the Houston area and a new facility in Austin, has fallen from 330 days in fiscal 2021 to 232 days in fiscal 2023 and 203 days as of June 30, according to the investor presentation.

The upcoming bond issue’s underwriting team led by RBC Capital Markets includes TD Securities and Loop Capital Markets. Bracewell and Cantu Harden Montoya are co-bond counsel and Kaufman, Hall & Associates is the financial advisor.

Articles You May Like

Public finance concerns remain as North Carolina digs out from Helene
Midwest private colleges face continued enrollment declines
How Netanyahu is ‘running rings’ around Biden
Public finance pros to meet next generation at Harris School event
How activist Irenic can amicably build shareholder value at Reservoir Media