Children’s National Health System Series 2020 Taxable Fixed Rate Bonds
Bond Sale Date: August 20, 2020
$300,000,000 Series 2020 Taxable Fixed Rate Bonds
Objectives
Given favorable market conditions, Children’s National Health System (“Children’s”) sought to take advantage of low interest rates to finance $200mm of general corporate purposes and refinance $100mm of its variable rate bank loan into fixed rate debt. Children’s had not been to market since 2015 and prepared to reintroduce itself to investors to lock in low cost long-term funding and to modernize its MTI.
Challenges
Similar to other children’s hospitals, Children’s faced financial implications from the COVID-19 crisis. Management was able to show volume and statistics through June as well as speak to trends in July that helped provide transparency around the COVID-19 impact. Furthermore, Children’s was able to affirm its current ratings and outlook in spite of increasing debt outstanding by more than 40%.
Given the goal to modernize the MTI and recognizing the taxable bonds are a 30-year structure with a make-whole call, Children’s National sought to implement the most flexible structure possible for the organization’s benefit over the long-term. The MTI was completely redrafted based on recent ‘AA’ children’s healthcare transactions that were successfully marketed though the investor acceptance was unclear until pricing.
Solution
Ponder advised Children’s National through all aspects of the plan of finance development and execution.
MTI Overhaul: Ponder reviewed comparable MTI provisions including the most recent transactions in July and August and advised on recommended changes and contingency language in case of investor pushback. Children’s National received over 2x subscription from 36 investor orders and was able to keep all the amended provisions that were originally marketed, resulting in one of the most flexible MTIs for an ‘A’ level healthcare borrower. The provisions included:
- Substitution of notes without a rating qualifier
- Transactions test as long as consolidated revenues > 110% of MADS
- DSC ratio at 1.0x as EOD if for 2 consecutive years and if <150 DCOH and if Debt-to-Cap > 66.67%
- No 4th quarter financial reporting
Pricing: Ponder worked with the underwriters to ensure that the lowest possible rate was achieved with pre-pricing and pricing analysis of comparables and market data as well as conversations with multiple desks to vet spread levels.
About Children’s National Health System (DC): A1/A+ (Moody’s/Fitch)
Children’s National operates a nationally ranked top 10 pediatric, acute care and teaching hospital in Northwest Washington, D.C. and numerous pediatric specialty care, primary care, and ambulatory centers, in the D.C. Metro area, Montgomery County, Prince George’s County, Maryland, and northeastern Virginia. Children’s National serves as the Department of Pediatrics of the GWU School of Medicine and Health Sciences. Today, Children’s National is ranked #7 Best Children’s Hospital by U.S. News & World Report, and for the ninth consecutive year, ranked in all ten specialties including #1 in neonatology.
Pricing Results:
Comparable Bond Sales:
