Appalachian Regional Healthcare System Series 2021A Bonds
Pricing Date: March 10, 2021
Closing Date: March 24, 2021
$114,505,000 Series 2021A Bonds
Objectives
Appalachian Regional Healthcare System (“ARHS”) sought to finance the expansion of its main hospital facility, Watauga Medical Center, which included four new floors, extensive renovations, the construction of a new central energy plant, and other associated projects/site improvements.
Challenges
- Financing the projects required ARHS to increase its debt load by 252%
- 35-year final maturity minimized the increase in annual debt service, but required ARHS to issue the bonds through an out-of-state issuing authority (Public Finance Authority, WI (“PFA”)), eliminating the in-state tax exemption
Solutions
- Assisted ARHS in crafting an Amended and Restated Master Trust Indenture: Ponder worked with ARHS, Bond Counsel, the bond underwriters and the North Carolina Medical Care Commission to establish “on-market terms” in the MTI, materially improving financial covenants and other requirements to ARHS’ benefit
- Extensive Rating Agency Dialogue: Ponder advised ARHS management to utilize S&P’s ‘Rating Evaluation Service’ to better understand the potential impact on ARHS’ credit rating from the proposed financing – a process which led to a ‘BBB’ rating with a stable outlook, a minimal reduction given S&P’s ‘BBB+’ rating with a negative outlook prior to announcement of the debt sale
- Utilization of 4% Coupon: Ponder strongly advocated for the use of a 4% coupon for the 2056 term bond, which saved ARHS approximately 0.45% on a yield to maturity basis versus a more traditional 5% coupon, and saved ARHS a present value benefit of $1.4 million
- Deal Reception: the financing was well-received, with 38 institutional investors placing over $2 billion in orders, which allowed the underwriters to reduce yields by 5 –18 basis points across the serial and term bond maturities
About Appalachian Regional Healthcare System (“ARHS”: BBB (S&P)
ARHS is an integrated health care system consisting of two hospitals, 13 medical offices, a cancer center, an imaging and lab center, and a wellness center. Collectively, these facilities provide a full array of inpatient and outpatient procedures, including 22 outpatient services, serving Watauga County and surrounding areas in northwestern North Carolina. ARHS’ two hospitals are Watauga Medical Center, a 117-bed acute care hospital located in Boone, and Charles A. Cannon, Jr. Memorial Hospital, a 35-bed hospital located in Linville, North Carolina.
Pricing Results:
Comparable Bond Sales:
