University Health System Series 2020A Tax-Exempt Fixed Rate Bonds
Bond Sale Date: May 5, 2020
$72,805,000 Series 2020A Tax-Exempt Fixed Rate Bonds
About University Health System
University Health System (“UHS”) is a not-for-profit Tennessee corporation created in 1998 to operate the University of Tennessee Medical Center (“UTMC”) as an entity independent of the University of Tennessee. UTMC is the Knoxville, TN region’s only academic medical center with 685 beds and serving 21 surrounding counties with a population of 1.4 million. UTMC has experienced exceptional market share growth with admissions increasing 11.6% from 2017 to 2019.
UTMC has served as the primary teaching site for the University of TN Graduate School with 232 residents and fellows on site. UTMC is the region’s only Level 1 Trauma Center, adult kidney transplant program, and offers seven specialized centers of excellence including the Cancer Institute and Brain & Spine Institute. UTMC is designated by the State of Tennessee as the regional Perinatal Center which serves women with high risk pregnancies and critically ill infants. More than 4,700 infants were born at UTMC in 2019. Additionally, UHS has two regional health centers and 27 provider locations and two additional urgent care locations in east Tennessee to grow and protect its patient referral base.
Credit Ratings: BBB/BBB (S&P/Fitch)
Focus on Value
Ponder & Co. (“Ponder”) has worked with UHS since 2007 as its independent capital financing advisor. During the past six months, Ponder assisted UHS to plan and execute the sale of publicly-offered tax-exempt fixed rate bonds for new capital projects that will expand the capacity of UHS’ main campus in Knoxville, TN to meet growing patient service demands.
Ponder supported UHS in all aspects of the financing, including debt capacity analysis for new borrowing, plan of finance design and development, finance committee and board communication, meeting disclosure requirements for COVID-19 developments and working with UHS’ bond underwriters to achieve favorable bond pricing in an extremely difficult market the week of May 4 (because of COVID-19’s overall impact on the US public health and economy).
During the same time, Ponder helped UHS management (a) obtain a $65 million bank line of credit for anticipated COVID related liquidity needs and (b) convert UHS’ outstanding $88 million of tax-exempt, bank-bought 2015 Bonds from a variable to 2% fixed rate and extend their term from 10 to 15 years.
For the public bond sale, Ponder assisted UHS and its senior underwriter to modify the plan of finance as public tax-exempt bond market conditions worsened. The financing was split into two – half of the bonds for sale immediately and the remainder postponed indefinitely. Final maturity for the initial series of bonds was reduced from 30 to 10 to 20 years to reduce the cost of capital. Bond market improvement and investor feedback enabled UHS to sell $72.8mm on May 5, and as the first ‘BBB’ rated healthcare borrower to come to market since the COVID-19 crisis began. UHS avoided a debt service reserve requirement and additional security pledge or financial covenants. UHS obtained $80mm of bond proceeds for immediate capital needs and at an attractive “all-in” borrowing cost of 4.10% and average bond life of 15 years.