Mayo Clinic’s $5 billion expansion may bring new debt issuance

The Mayo Clinic has ambitious plans that start at home. When the Rochester, Minnesota-based nonprofit healthcare system reported. The construction and development firm, headquartered in Providence, Rhode Island, will work with architect Foster + Partners to get some of the renovated facilities open by the end of 2028.

The architecture of the new buildings, which will span 2.4 million square feet, incorporates more sunlight and access to nature, according to a Mayo press release.

Medical neighborhoods, linked both horizontally and vertically, will be designed around common diseases and patients’ needs. And the buildings will feature a flexible grid, meaning that rather than designing spaces for fixed uses – surgery rather than imaging, or vice versa – suites will be able to transform as clinicians’ priorities change.

Moody’s Ratings assigns a rating of Aa2 to Mayo and to its Series 2021 taxable and Series 2022 bonds. The outlook is stable.

Mayo reported more than $4 billion of long-term debt on its most recent audited financial report, for the year ending Dec. 31, 2023.

It has issued tax-exempt debt through conduits the city of Rochester, Minnesota, the Phoenix Industrial Development Authority, and the city of Jacksonville, Florida, and taxable debt under its own name, according to its financials.

S&P assigns its AA rating to Mayo’s revenue bonds. The outlook is stable.

In an April 2023 report, S&P credited Mayo with a strong financial profile but pointed to weakened performance from higher labor expenses, a recent trend across the healthcare sector.

“The balance sheet has also attenuated, but in absolute terms reserves are considerably greater than 2019 levels and all balance sheet ratios are still stronger compared with those of 2019,” S&P noted. 

Not included in S&P’s balance sheet ratios is an additional $4 billion of restricted operating and endowment investments which bolsters Mayo’s research efforts and educational programs.

The rating agency observed that Mayo is going through a period of elevated capital spending, and said it expects to hear more in coming years about a major Rochester-based project “aimed at expanding and updating clinical space.”

Mayo has a strong national brand, a broad clinical footprint, a healthy and flexible balance sheet and an experienced management team, S&P said.

Offsetting that strength, the rating agency noted, are the system’s potentially reduced performance for the next few years as capital spending ramps up; its significant operating investments to support its strategic plan; its high expenditures for a few extended projects; and the long-term risk of higher postretirement employee health care benefit liabilities.