OU Medicine, Inc. $1.16 Billion Financing (Series 2018B&C)
May 16, 2018
Cain Brothers served as the exclusive Financial Advisor in the public issuance of $1.16 billion of fixed rate revenue bonds on behalf of Oklahoma City’s OU Medicine, Inc. (“OU Medicine”). The aggregate issue was comprised of $911 million of tax-exempt public fixed rate bonds (Series 2018B) and $251 million of taxable public fixed rate bonds (Series 2018C). The Series 2018B&C bonds were issued with an underlying public bond rating of Baa3 (stable) and BB+ (stable) by Moody’s and S&P, respectively.
In February 2018, OU Medicine, an affiliate of University Hospitals Authority and Trust (“UHAT”), completed the acquisition of the interests held by HCA Healthcare (“HCA”) in OU Medical System (“OUMS”), a joint operating company previously operated by HCA and UHAT. OU Medicine, the newly formed 501(c)3 corporation, funded the buyout of HCA’s interest in OUMS with a ~$900 million bridge financing and $175 million subordinated debt. UHAT and OU Medicine retained Cain Brothers as its exclusive M&A and Financial Advisor in relation to the termination of the HCA agreement and the sourcing of the bridge financing, and subordinated debt.
Proceeds from the combined $1.16 billion bond issuance were predominately used to refinance the Bridge Financing, and to fund OU Medicine’s $300 million bed tower expansion project. The planned 450,000 sq. ft., nine story expansion and 100,000 sq. ft. renovation will increase patient capacity (144 beds & 32 ORs) at the OUMS campus and will be a key driver of improved patient experience. The Series 2018B&C bond proceeds also provided OU Medicine with an additional $30 million of unrestricted liquidity to further capitalize its balance sheet, defeased $42 million of outstanding UHAT bonds, and capitalized interest during the construction period.
Assured Guaranty Municipal Corp (“AGM”) served as the insurance provider on ~$85 million of tax-exempt bonds and ~$50 million of taxable bonds, allowing OU Medicine to market an improved debt structure featuring discount coupons. AGM also provided a surety policy in lieu of a debt service reserve fund. The collective AGM enhancements effectively lowered the total par amount of the 2018B&C bonds by ~$115 million.
Strong marketing from the management team’s multi-state investor roadshow and favorable market conditions resulted in robust investor demand that facilitated a very attractive all-in TIC of 4.957% with a 40-year final maturity. The Series 2018B&C bonds were underwritten by Bank of America Merrill Lynch (Bookrunner) and Citi (Co-Senior).
Additionally, Cain Brothers served as Bidding Agent on behalf of OU Medicine in relation to securing a $50 million revolving line of credit (“Revolver”) and the reinvestment of $286 million of proceeds from the Series 2018B&C bond issuance.