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Bayfront buyer Orlando Health aims to own the I-4 corridor

Margie Manning



Bayfront Health St. Petersburg

Bayfront Health St. Petersburg plays a key role in the future of Orlando Health.

The Orlando-based non-profit, which expects to close on its purchase of Bayfront this week, wants to capitalize on the Interstate 4 corridor, from Daytona Beach to Florida’s west coast, said Bernadette Spong, chief financial officer.

“Our growth strategy is to own the I-4 corridor,” Spong said during an investor presentation for a bond issue planned by Orlando Health. “That goal of achieving the I-4 strategy or I-4 dominance continues to be something we are focused on, and St. Petersburg helps us.”

Orlando Health is offering $515 million in bonds, with some of the money raised used to finance the purchase of Bayfront. Neither Orlando Health nor the hospital’s current owner, Community Health Systems, has disclosed the purchase price. The deal is scheduled to close Wednesday, and Orlando Health’s new leadership team will take over on Thursday.

“We are very excited about the opportunity to bring the Orlando Health culture to St. Petersburg,” Spong said. “Bayfront is actually older than Orlando Health. It’s about 110 years old. Orlando Health is about 103 years old. We see a lot of opportunities to improve the healthcare that’s provided at Bayfront and the market growth … We are poised and ready to grow that market share in Pinellas County.”

Bayfront Health, at 701 6th St. S., is the largest hospital in St. Petersburg, with 480 licensed beds and a level two trauma and tertiary care center. The hospital reported a net loss of $10.5 million on $236.9 million in operating revenue in 2018, according to the most recent Florida Health Market Review.

The Covid-19 pandemic made Orlando Health realize the importance of geographic diversity.

“Central Florida was hit pretty hard with the closing of the theme parks and tourist industry and we realize and recognize the importance of diversifying our footprint into the western part of the state,” Spong said.

Orlando Health’s financial performance tracks patient volume closely, said John Miller, vice president of finance. Through February, the system’s volumes were high and operating margin was above 10 percent. But the system posted volume declines and operating losses in March through May, as Disney, Universal and other tourist attractions shut down, stay-at-home orders were issued and elective surgeries were put on hold. When theme parks reopened, stay-at-home orders were lifted, and elective surgeries resumed, volumes started going up and operating performance was strong in June through August, Miller said.

For the nine months ended June 30, Orlando Health reported $2.56 billion in net patient revenue and $228.5 million in income from operations.

Bernadette Spong

Orlando Health is heading into the Bayfront deal well-prepared,  with lessons learned from a brief affiliation with Lakeland Regional Health. Spong said the Lakeland leadership didn’t have a good understanding of what the transaction required.

“I think we are much wiser and are doing things in a more consolidated fashion, and being very open with the leadership as to what to expect with the consolidation and the acquisition effort that we didn’t do with Lakeland. We learned a lot with that experience and I think that will benefit us down the road,” Spong said.

The deal with Bayfront is not identical, she said, but Bayfront’s seller, Community Health, has been divesting hospitals around the country and knows what it is getting into, she said.

Orlando Health itself is a turnaround story.

“When John and I got to Orlando Health about five years ago, they had a loss in 2012 or 2013, and they were looking to be bought. They had a poor balance sheet, terrible income statement, no real strategic growth plan, no strategy really,” Spong said. “We have come in, we have strengthened the balance sheet … We are very proud of what we have accomplished.”

Credit agencies have recognized that, she said. Moody’s Investors Services assigned A2 ratings to the new bond issue and S&P Global Ratings assigned an A+ rating. Both are investment grade ratings. Both agencies have a stable outlook on the bonds.

S&P’s rating reflects “multiple years of very strong operation and cash flow,” Stephen Infranco, credit analyst, said in a news release. The management team has “successfully guided the organization over the past five years and is positioning the health system to compete effectively in a challenging landscape and competitive market,” Infranco said.

Moody’s also acknowledged the system’s strong historical performance, but said the Bayfront deal adds some risk, because Orlando Health is entering a new market.

“Integration into Orlando Health and building a clinical foothold will be integral to improved and durable financial performance in this very competitive Tampa-St. Pete market,” Moody’s said.

Orlando Health expects to price the bonds on Wednesday, with the expected settlement date as early as Wednesday, Oct. 7.

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.

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