Cleveland Clinic to issue rare century bond
By Robin Respaut (Reuters) - Cleveland Clinic plans to issue a rare century bond on Thursday, marking a first from the not-for-profit healthcare sector and one of few such debt issues in the U.S. municipal market. Cleveland Clinic, which specializes in cancer and cardiovascular treatment, will join an elite club in capital markets circles. The Ohio-based health system favored the ultra-long $400 million issuance because it offered more flexibility to help fund new partnerships and technology, Cleveland Clinic Chief Financial Officer Steve Glass said on Wednesday. Moody's Investor Service reported that Cleveland Clinic's strong reputation, exceptional ability to fundraise, and high demand from patients make the health system less vulnerable to risks associated with ultra-long debts. Other hospitals are unlikely to follow Cleveland Clinic's example though, Moody's said. The recent acceleration of consolidation in the healthcare industry has made it more difficult to forecast the longevity of hospitals, Moody's warned, particularly as consumers become more sensitive to prices and hospitals restructure operating models. Many smaller hospitals will not be eligible for such lengthy bonds as they are predicted to close before they come due, as patients favor outpatient care. Only 67 century bonds, totaling $17.5 billion, have been issued since Walt Disney (DIS.N) and Coca-Cola (KO.N) debuted the 100-year deal in 1993, IFR data shows. Most recently, century issuances have been dominated by high-rated universities, which account for six of the 10 deals since the financial crisis, led by Massachusetts Institute of Technology's $1.3 billion in deals since 2011, largely on the basis that they are more likely to be around in the next century than many companies. Cleveland Clinic said it typically accesses the $3.7 trillion U.S. municipal market every two to three years. With its new century-long issuance, the health system plans to expand its cancer center and Florida operations, but also raise new revenue and leverage intellectual capital over a long period, Glass said. After this week, Glass does not expect to return to the muni market until maybe 2017. Cleveland Clinic's century bonds represent 12 percent of its total debts, a modest amount compared to some of the universities that carry the 100-year debts. Hamilton College, Bowdoin College and Massachusetts Institute of Technology have nearly half of their debt tied up in century bonds, according to Moody's. Century bonds are sometimes favored for their ability to lock in low interest rates, but they are also extremely expensive to call. There are no principal payments for 100 years, allowing for greater operating flexibility but less capacity to issue future debt. Cleveland Clinic plans to save for the repayment of the bonds through annual contributions into an internal fund account, noted the rating agency. (Reporting by Robin Respaut and Anthony Rodriguez at IFR; Editing by Tom Brown)
