LifeBridge Health, Inc. Taxable Fixed Rate Bank Loan / Revenue Bond

10 Mar

Case studies

LifeBridge Health, Inc. Taxable Fixed Rate Bank Loan / Revenue Bond

Closing Date: March 5, 2020

$48,335,000 Taxable Fixed Rate Bank Loan / Maryland Health and Higher Educational Facilities Authority Revenue Bond, LifeBridge Health Issue (2022)

About LifeBridge Health, Inc.

LifeBridge Health, Inc. (“LBH”) is a Maryland tax-exempt non-stock corporation that is one of the largest and most comprehensive providers of health-related services in the Baltimore metropolitan area.  LBH was founded in 1998 through the merger of Sinai Health System, Inc. and Northwest Health System, Inc. and includes five main facilities:  Sinai Hospital, Levindale Hebrew Geriatric Center and Hospital, Northwest Hospital, Carroll Hospital and Grace Medical Center.  In total, LBH operates 718 licensed acute care beds and, through various subsidiaries, employs in excess of 550 providers who practice at the hospital campuses and more than 65 off-campus sites across Central Maryland.  LBH also directly or indirectly owns and has investments in various other for-profit and not-for profit organizations that span the continuum of care.  In  FY 2019,  LBH generated over $1.6 billion of total operating revenue and had over $2.2 billion of total assets at fiscal yearend.

Pricing Results

Credit Ratings: A1/A+ (Moody’s/S&P) Stable Outlook


Focus on Value

Ponder & Co. (“Ponder”) was engaged by LBH to assist with the advance refunding of its $43.355 million of callable Maryland Health and Higher Educational Facilities Authority (“MHHEFA”) Revenue Bonds, Carroll Hospital Center Issue, Series 2012A (the “2012A Bonds”).  The average coupon on the 2012A Bonds was 4.86% and LBH was interested in advance refunding these bonds for substantial interest cost savings.  With the Federal Tax Cuts and Jobs Act of 2017 (effective January 1, 2018) eliminating tax-exempt advance refunding bonds for not-for-profit hospitals, the refunding was structured as a taxable advance refunding, which is still permitted under current tax law.

The taxable financing was provided directly by a bank at a fixed rate of 2.32%, and included an extraordinary call option at par, which enables LBH to current refund the taxable loan at no penalty with tax-exempt bonds on or after July 1, 2022, the first optional call date of the 2012A Bonds.  Importantly, the same bank that provided the taxable loan agreed to directly purchase the tax-exempt current refunding bonds at a fixed rate of 1.83%, assuming the conditions to their issuance through MHHEFA are met.   The combination of the taxable and tax-exempt rates produced an all-in financing cost of 2.07%, generating estimated refunding savings of $6.915 million in present value terms (nearly 16% of the refunded bonds), and average annual savings of $513,000.

After a comprehensive review of public and private market refunding alternatives, Ponder recommended that LBH move forward with the taxable/tax-exempt direct bank purchase structure. To obtain the lowest rates and most advantageous terms, Ponder assisted LBH in conducting a competitive request for proposal process. The winning proposal provided the best combination of low interest rates, longest financing term (15 years), and favorable financial covenants and terms consistent with LBH’s existing Master Trust Indenture.

Ponder led an efficient execution process that ultimately enabled LBH to lock-in the taxable and tax-exempt interest rates just prior to the extreme market volatility in March 2020 related to COVID-19 and oil market turmoil.  Within two weeks of the rate lock, the public fixed rate bond market was frozen and inaccessible to healthcare borrowers, and the bank market was ratcheting up credit spreads and offering less favorable financing terms and covenants.