St. Luke’s Hospital of Duluth Series 2021A and 2022A

27 Aug

Case studies

St. Luke’s Hospital of Duluth Series 2021A and 2022A

Pricing Date: August 24, 2021

Current Settlement Date: September 9, 2021

Expected Forward Settlement Date: March 17, 2022

$15,000,000 Series 2021A Tax-Exempt Fixed Rate Bonds

$49,000,000 Series 2022A Tax-Exempt Forward Delivery Bonds


St. Luke’s Hospital of Duluth (“St. Luke’s”) sought to take advantage of historically low interest rates and reduce interest rate risk by forward refunding its Series 2012 bonds with a call date in June 2022. In addition, St. Luke’s elected to improve its risk-adjusted cost of capital by taking advantage of economies of scale and refinancing three series of outstanding bank debt.


  1. Achieve an investment grade rating based on improving financial performance, despite pressures from the pandemic
  2. Enhance flexibility through a modernized MTI with liberal covenants for a ‘BBB-’ rated credit
  3. Given the forward settle aspect of the transaction, minimize the forward bond premium required by investors to maximize savings of the refunding
  4. Recent uptrends in COVID-19 rates created uncertainty in the healthcare market leading up to pricing and investors focused on all-in yield levels


  1. Rating agency strategy: Ponder helped St. Luke’s successfully communicate its credit story and benefits of the financing to S&P, which resulted in an investment grade ‘BBB-’ rating with a stable outlook
  2. Assisted St. Luke’s in crafting amended and restated MTI: Ponder worked with St. Luke’s, bond counsel, and the underwriter to modernize St. Luke’s existing MTI provisions, including the addition of a note substitution provision and more lenient rate covenant with a 2-year EOD provision
  3. Achieved significant saving results: Through the 2021 financing, St. Luke’s produced estimated NPV savings (4% PV rate) of $15.0 million (24% of refunded bonds) on the forward refunding and $2.5 million (15% of refunded bonds) on the current refunding
  4. Pricing Results: Ponder worked with management and the banking team to advocate for low coupon bonds, including a 3% coupon term bond, to reduce the overall TIC of the issue. Overall, St. Luke’s secured a cost of capital of 2.65% (all-in TIC) on the transaction and was able to lower credit spreads by up to 8bps on Series 2021A and 12bps on Series 2022A

About St. Luke’s: ‘BBB’ (S&P)

St. Luke’s Hospital of Duluth (“St. Luke’s”) is a Minnesota nonprofit corporation which includes a 267-licensed bed tertiary care hospital in Duluth, Minnesota, a critical access hospital in Two Harbors, Minnesota, and other health care facilities. St. Luke’s offers primary, secondary, and tertiary care to patients in a 17-county area in northeastern Minnesota, northern Wisconsin, and upper Michigan.

Pricing Results Series 2021A:

St. Lukes Series 2021A Pricing Results

Pricing Results Series 2022A:

St. Lukes Series 2022A Forward Pricing Results

Comparable Bond Sales:

St. Lukes Series 2021A and 2022A Comparable Bond Sales