Emerging mostly unscathed from COVID-19’s stresses, New York-based Northwell Health returns to market with $735 million of A-minus rated bonds Tuesday, its first deal since 2019.
Northwell is the largest health network in New York City, which experienced some of the sharpest and earliest impacts of the pandemic in the United States. Northwell has a 29.9% share in the city and neighboring Westchester County. The nearest competitors are New York Presbyterian at 12.2% and Mount Sinai Health at 11%.
Northwell also has what Fitch Ratings calls a “dominant share” of the highly populated county to the east of New York City, Nassau County. It has a strong presence in Suffolk County, further out on Long Island.
Northwell Health
Despite the pandemic, operating revenues increased 8.5% from 2018 to 2019, 7.6% from 2019 to 2020, and 8.25% from 2020 to 2021. Operating cash-flow margin dipped from 6.6% in 2019 to 4.7% in 2020 but rebounded to 6.2% in 2021.
The deal is rated A3 by Moody’s Investors Service and A-minus by both Standard & Poor’s and Fitch Ratings, all with stable outlooks.
The Dormitory Authority of the State of New York will price the deal, which is structured with serials from 2033 to 2041 and terms in 2045 and 2052, with a 10-year call.
Citigroup and Morgan Stanley are the co-senior managers. Also on the underwriting team are AmeriVet Securities, American Veterans Group, Bank of America Securities, BNY Mellon Capital Markets, Cain Brothers, JPMorgan, Rice Financial Products, TD Securities, and Wells Fargo Securities.
Vice President for Finance, Matthew Kirschner, noted that Northwell wants to support veteran- and minority-owned firms and adding them widens the customer base.
There has been substantial volatility in the municipal market so far in 2022 and bond buyers have generally been asking for increased interest rates in the last several months.
New York’s index has underperformed the broad market by almost 50 basis points and spreads have widened since the start of the year on supply that is 5% greater than last year. New York issuers have priced more than $18 billion in 2022 and have $447 billion outstanding.
The Bloomberg New York index has lost 0.79% month-to-date and 9.97% through Monday. The broader Muni Index has lost 0.75% so far in May and 9.50% year-to-date.
Hospital debt has lost 1.17% month-to-date and 10.84% year-to-date, per Bloomberg data.
However, Kirschner said with the strong marketing efforts of his underwriting team, solid ratings, and Northwell’s own well-known name in the market, “we think we will do quite well despite the added volatility.”
“Northwell Health provides critical and exceptional health care services to New Yorkers,” DASNY President Reuben McDaniel said. “They are a valued client and we expect great demand for their bond issuance.”
Northwell consists of 19 owned hospitals, three long-term care facilities, four certified home healthcare agencies, a hospice network, 850 ambulatory and physician practice locations, and a medical school in partnership with Hofstra University. It also owns a flex-staffing nursing business.
“Northwell [has a] highly integrated and broad franchise with a large footprint in a service area with a favorable demographic profile, where it holds a leading market share position in a competitive market,” noted Fitch Senior Directors Eva Thein, Keven Holloran, and Joanne Ferrigan in a report. “Other factors include a very low average age of plant based on a history of significant capital spending and the ability to successfully extend market reach through strategic investments and acquisitions, executed without materially diluting its overall credit profile.”
Northwell’s core business has “consistently” demonstrated strong revenue growth, they said, noting that i ts “operating platform and proven management strength … will enable it to achieve stronger operating results over the medium term.”
While about $122 million of the bond revenue will be used to refund Series 2009B, Series 2009C, and Series 2009D bonds, about $319 million will be used for new-money capital expenditures, and $326 million will be used as reimbursement of prior capital expenditures. Fitch said Northwell has a “robust capital plan.” Kirschner said the investments will benefit Northwell’s finances in the long-term and are thus “accretive.”
Fitch also noted that Northwell’s balance sheet showed “weaker liquidity” and “high debt position.” The analysts said they anticipate the “metrics will gradually show recovery in the outer years.”
Northwell has $4.88 billion of debt outstanding including short-term debt and capital leases, according to S&P Global Ratings.
Northwell last priced $202 million of bonds in September 2019, also through DASNY. At that time its 2024 maturity priced with a 5% coupon at 1.56% (+20 Bloomberg BVAL) and its 2033 maturity was priced with a 5% coupon at 2.26% (+54 BVAL).