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BayCare prepares huge bond sale as Covid-19 bites into operations, investment portfolio

Margie Manning

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BayCare Health System headquarters in Clearwater

BayCare Health System is expected to sell up to $600 million in bonds the week of April 13 to build a new hospital in Wesley Chapel and to finance improvements at seven other hospitals.

The Clearwater-based healthcare system is moving forward with the bond issue, even while other nonprofit health systems nationwide have postponed issuing debt because of the uncertainties created by the Covid-19 outbreak, according to Modern Healthcare.

“We are fortunate to have a double A bond rating that allows us to proceed with our efforts,” Janice Polo, BayCare chief financial officer, said through a spokeswoman for the system.

Bonds are used by corporations, government entities and others to finance projects and operations. They are a type of financial instrument that represent a loan made by an investor — often big institutional investors such as pension funds or endowments — to the borrower. They are typically sold in large increments, often $1,000 or more.

BayCare, the largest healthcare system in the Tampa-St. Petersburg metro area with $4.4 billion in revenue in 2019, also has felt a significant impact from coronavirus, the health system said in preliminary bond documents.

While the full scope of the impact isn’t yet known, BayCare said its cash and investments dropped by $700 million, or 13 percent of its aggregate portfolio value, for the three months ended March 31. That’s primarily a loss on paper, based on the value of investment holdings.

A statewide executive order cancelling all elective medical and surgical procedures in Florida will materially impact operating revenues at BayCare facilities. Labor costs could go up with overtime pay or pay to more expensive contract staff. Supply chains have been disrupted and the cost of pharmaceuticals and equipment could take another big bite into operating revenue.

About $500 million raised through the bond issue will be new money for the health system. The other $100 million will refinance existing debt.

BayCare plans to use some of the proceeds to develop an 86-bed hospital in Wesley Chapel in Pasco County. The new hospital is expected to open in 2023.

The new funding also will pay for miscellaneous capital improvements and renovations at St. Anthony’s Hospital in St. Petersburg. St. Anthony’s last month broke ground on a 90-bed patient tower, although the bond document does not specifically say the patient tower is being financed by the new debt.

Other hospital projects the new bonds will pay for are:

• Mease Countryside Hospital: General equipment and capital improvements to facilities.

• Morton Plant Hospital: Capital improvements to, expansion of and general renovations to IR and other miscellaneous capital improvements.

• Morton Plant North Bay Hospital: Emergency department renovation and expansion and other miscellaneous capital improvements.

• St. Joseph’s Hospital: The construction of a 90-bed patient tower and miscellaneous construction, renovation, improvements and equipment.

• St. Joseph’s Hospital-South: Expansion of NICU and miscellaneous construction, renovation, improvements and equipment.

• St. Joseph’s Hospital-North: Vertical expansion of inpatient tower and miscellaneous construction, renovation, improvements and equipment.

Two credit agencies have given investment grade ratings to the bond issue.

Moody’s Investors Service assigned an Aa2 rating, reflecting Moody’s expectation that BayCare will continue to generate very strong operating performance and maintain excellent liquidity despite elevated capital spending to fund growth strategies.

While coronavirus will have an impact on operations, that impact should abate in the second half of 2020 based on current assumptions, Moody’s said.

BayCare’s margins could decrease in the coming months due to the disruption from the coronavirus outbreak, Fitch Ratings said, but Fitch expects BayCare to be able to absorb this near-term operational strain. Fitch assigned an AA rating to the bonds.

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