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California Issues $541 Million in Healthcare Bonds

By Munichain News Desk

The California Health Facilities Financing Authority sold $540.7 million in bonds to finance improvements at hospitals near San Diego.

The bonds mature between 2026 and 2044, yielding between 2.47% and 3.61%. They pay interest at 5%. The securities received a rating of AA- from S&P Global Ratings and AA from Fitch Ratings, which revised its outlook from stable to negative.

The authority will loan the bond proceeds to Scripps Health, a San Diego-based healthcare system. 

“Affirmation of the ‘AA’ rating is based on the expectation that Scripps is implementing various steps that will gradually improve financial performance,” Fitch analysts wrote. The negative outlook reflects concerns that the system may not return to prepandemic operating levels within the two-year outlook period, the analysts added.

Scripps is the one of the largest healthcare systems to tap the municipal bond market in what is proving to be a banner January for hospital bonds. Through January 12, hospitals had sold more than $1.7 billion in municipal bonds, according to data compiled by Bloomberg. That total marked the largest January for hospital bonds since 2020.

The bond proceeds will finance capital projects within the Scripps system and refinance prior bonds. 

Scripps Health operates five hospitals in the San Diego area. The hospital system recorded $231 million in net income in fiscal year 2022, compared to $275 million in FY2019; it generated $4.3 billion in operating revenue last year. The bonds are limited obligations of the authority, payable by Scripps Health revenue.

Morgan Stanley & Co LLC served as lead underwriter on the issuance, purchasing the bonds for $619 million. The price reflected a premium of more than $78 million. Kaufman, Hall & Associates, LLC acted as financial advisor.

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