San Diego’s Sharp HealthCare sets $343 million fixed-rate deal

The San Diego area’s Sharp HealthCare plans to bring $343.2 million of fixed-rate revenue bonds to market next week, continuing early next year with variable-rate financings.

The fixed-rate tax-exempt bonds will be priced the week of Dec. 18 through conduit issuer California Public Finance Authority, according to an online investor presentation.

RBC Capital Markets and TD Securities are lead managers. KaufmanHall is municipal advisor. Orrick is bond counsel.

“Our five-year operating cash and capital plan includes capital investments of $1.4 billion over next five years, with $300 million financed by the Series 2024 bonds,” Alison Fleury, the healthcare system’s senior vice president for business development, said in the investor presentation.

The proceeds beyond $300 million will refund outstanding debt.

Upgrades to be financed with the new money bonds include relocated and expanded emergency departments, intensive care units, and earthquake safety upgrades at the system’s seven acute-care and specialty hospitals, she said.

The overall plan of finance from next week through February has the system issuing $645 million of bonds, of which 54% will be fixed rate, she said. The refinancing component is bolstered by a forward-starting fixed payor swap executed in 2020 that is “very favorable in this market,” she said.

Ahead of the deal, S&P Global Ratings affirmed its AA long-term rating and stable outlook on the system’s fixed-rate revenue bonds, and Moody’s Investors Service affirmed its Aa3 rating and stable outlook.

“The ratings reflect our view of Sharp’s very strong enterprise profile and healthy financial profile,” S&P analyst Anne Cosgrove said in a news release.

“We believe that the additional debt is manageable at the current rating, given Sharp’s balance sheet strength and our expectation for continued operational improvement,” the S&P rating report said.

Moody’s cited the system’s leading market position in San Diego County, a well-executed competitive strategy, strong clinical offerings, an integrated health plan, and extensive physician relationships. Sharp is projected to improve operating performance over the next three years and maintain its very strong balance sheet, which now has more than 300 days cash on hand, its rating report said.

“For the time being, Sharp will remain hampered by industry-wide operational headwinds which will drive weaker than historical results for the third consecutive year in 2024. Challenges include unfavorable payer mix shifts, inflation, labor challenges, and continued significant competition,” according to Moody’s, which said Sharp’s investments are expected to yield positive returns beginning in 2026 which will contribute to margin improvement.

“Sharp has a history of successfully executing complex capital plans,” the rating agency said.