WMCHealth
When selling a credit with a fairly modest balance sheet, especially one facing the challenge of operating a healthcare system in New York State, the most important thing is to tell a story.
The “Hudson Valley cannot exist without this tertiary [and quaternary] academic medical center,” said Mike Quinn, a managing director at BofA Securities and the lead banker for the deal to finance a new state-of-the-art patient tower on Westchester Medical Center’s main campus in Valhalla, New York.
The $286.95 million Series 2023 financing, priced through the Westchester County Local Development Corp., won the
“This deal came to be when it became apparent that building this new critical care, advanced care bed tower was a strategic imperative for the medical center,” said John Morgan, senior vice president of financial operations and interim CFO at Westchester Medical Center Health Network, or WMCHealth, the hospital’s parent organization.
“It made a lot of sense,” Morgan said. “It would increase our volumes. It would be accretive to our bottom line. It would be a financially beneficial project.”
The 62,000-square-foot tower, set to cost $220 million, will rise five stories upon completion, with a target date of the second quarter of 2026.
Adjacent to WMC’s main tower, the tower will house 128 private, state-of-the-art patient rooms.
Along with funding the new critical care tower, dubbed the “Tower to Heal,” the proceeds were used to finance a tender of WMCHealth’s Series 2020 taxable bonds at a “significant discount to par, which enabled the organization to de-leverage,” according to the award nominating statement. Around $90 million of the outstanding bonds was tendered.
After choosing a team, one of the first steps was securing ratings.
The deal received Kroll Bond Rating Agency’s first direct rating of a healthcare system, securing a BBB-minus rating.
“We gave credit to the market position, the scale of operations, the focus on the tertiary and quaternary care piece, the connection to New York State, and the essential services that this is the hospital,” said Doug Kilcommons, a managing director of public finance at KBRA.
This balanced against the financial weakness around liquidity and questions around whether WMCHealth could meet its $220 million price tag due to the fundraising component, he noted.
WMCHealth, despite significant new leverage for the patient tower, had its BBB-minus rating from S&P affirmed and the outlook revised to stable from negative.
“The outlook revision reflects our view of continued cash flow stability and improvement over the outlook period,” S&P Global Ratings credit analyst Anne Cosgrove said in a statement at the time.
From there, the executive leadership team of WMCHealth took the show on the road.
“We said to the client, ‘Nobody tells your story better than you do. Why don’t we hold an in-person road show?'” Quinn said as WMCHealth met with over 20 institutional funds in Boston; Princeton, New Jersey; and Malvern, Pennsylvania.
On the day of the transaction, there were very few hiccups, with everything running smoothly and professionally, Morgan said.
The deal generated participation from 81 different institutional investors, and the bonds were oversubscribed, reducing yields by 10 to 22 basis points for all maturities.
“Orders were flying in, the rates were good that we made a decision on the fly that we were going to upsize the transaction by $30 million,” Morgan said.
To do that, aboard meeting convened to approve the upsized deal, he noted.
“So within 15 minutes, we had a quorum, and by telephone, we had an executive committee meeting of the board and upsized the deal,” Morgan said.
WMCHealth used an annual premium structure from Assured Guaranty, with insurance being used across most maturities to bring down the all-in cost, the nominating statement said.
The Assured wrap brought the ratings to AA-plus from KBRA and AA from S&P.
“Assured Guaranty was pleased to partner with Westchester Medical Center Health Network to help bring this unique and important transaction to market,” Leigh Nader, managing director of healthcare and higher education at Assured, said in an email. “We were able to assist in optimizing the structure of the transaction and providing the issuer with significant savings.”
BofA Securities was lead manager on the deal, and Citigroup, Siebert Williams Shank and Academy Securities were co-managers.
Lamont Financial Services Corp. was the municipal advisor and Katten Muchin Rosenman LLP was the bond counsel.
The deal was necessary for WMC, a crucial provider for the community with an academic medical center and the region’s only advanced care and Level 1 Trauma Center that serves more than three million people in the Hudson Valley region, northern New Jersey and lower Connecticut.
A regional referral center, WMC specializes in advanced care and has received, on average, more than 10,000 patient transfers per year from other hospitals.
Emergency room visits average around 50,000 annually, and the hospital’s case mix index, a measure of patient acuity, is one of the highest in the country.
The project is a “capstone” on major construction for WMCHealth for the next seven to 10 years, Morgan said.
“It completes the needed work and the building that needed to be done on this campus,” he said.
“When we issue bonds, there are two moments of triumph: when we do the groundbreaking and when we do the ribbon cutting,” said Joan McDonald, chair of the Westchester County Local Development Corp. and director of operations for the Westchester County government.
Construction broke ground on the $220 million project — funded by the proceeds from the deal and an “aggressive” fundraising campaign — in July, Morgan said.
“Projects like this send a message, to the financial community in particular, that not-for-profit corporations, hospitals and universities are an extremely important partner, both from providing services to residents, but also as an economic driver, from the construction jobs that are created to the additional employees that the new facilities will employ,” McDonald said.
“This project is not just about bricks and mortar; it’s about our unwavering commitment to the health and well-being of our community,” said Michael D. Israel, president and CEO of WMCHealth, in a press release. “The Critical Care Tower will stand as a testament to our continued leadership, providing ultramodern facilities for critical care that will impact lives for years to come.”