H2C Advises Tower Health on $455.3 Million Bond Financing

 

NEW YORK — June 4, 2020 — Hammond Hanlon Camp LLC (“H2C”), a healthcare-focused strategic advisory and investment banking firm, through its wholly owned subsidiary, H2C Securities Inc. ("H2C"), served as the exclusive financial advisor to Tower Health (“Tower”) in the issuance of $455.3 million in bonds. The transaction consisted of $44.7 million in tax-exempt, fixed-rate bonds (Series 2020A), $64.6 million in five-year tax-exempt put bonds (Series 2020B-1), $82.5 million in seven-year tax-exempt put bonds (Series 2020B-2), $72.9 million in 10-year tax-exempt put bonds (Series 2020B-3), and $190.7 million in taxable, fixed-rate bonds (Series 2020 Taxable) (collectively, the “Bonds”).

 

Over the past two years, Tower has grown its network from one hospital to seven hospitals. Most recently, in December 2019, Tower and Drexel University completed the acquisition of St. Christopher’s Hospital of Children (“St. Chris”). At the beginning of 2020, long-term tax-exempt and taxable interest rates were near all-time lows. In evaluating Tower’s existing capital structure and new money needs, H2C recognized that Tower was facing an historic opportunity to reduce risk in its debt profile as well as lock in long-term committed capital at low rates.

 

 H2C created a plan of finance to:

 

• Refund $275 million of variable-rate bank debt that had mandatory tenders in the next four years

• Refund $44.7 million of Series 2009A-3 bonds that were currently callable

• Fund the purchase of St. Christopher’s Hospital for Children

• Refund $100 million of its lines of credit

• Terminate its fixed payer swaps

 

H2C evaluated a wide range of fixed- and variable-rate financing options, including options regarding tenor, private vs. public issues, and amortization structures. On Feb. 4, 2020, Tower priced $455.3 million in bonds. The Series 2020A Bonds are non-callable serial bonds. The Series 2020B Bonds consisted of five-year, seven-year, and 10-year put bonds. The 2020 Taxable Bonds were structured as a 30-year bullet. The put bonds are callable at a premium, which allowed Tower to price the bonds at a yield to call equal to the yield to maturity. Given that it is unlikely the bonds will be called, the benefit essentially was cost-free to Tower.

 

H2C’s plan of finance restructured Tower’s debt profile. The 2020 bonds had all-in true interest cost of 3.28 percent and an average life of 16.7 years. H2C also saved Tower 9 bps with its idea to include a non-callable structure for the serial bonds maturing in 11 and 12 years.

 

“H2C worked with Tower Health and our lead underwriter, Citi, to help us de-risk our balance sheet by eliminating interest-rate risk, mitigating event risk, and reducing onerous covenants. The plan of finance provided us with attractive, long-dated fixed rates and terminated unfavorable legacy swaps," said Sean O’Connell, Vice President, Treasury Services, Tower Health.

 

“H2C focused on leading a smooth and timely process, which resulted in deal completion just 15 weeks after deal kickoff,” said Elaine Yao, Managing Director, H2C. “Given the transaction closed just one month before the COVID disruption in the capital markets, timeliness was paramount. We are honored to continue to serve as Tower’s financial advisor and assist the System in its mission to provide high-quality care to communities across southeastern Pennsylvania.”  Email Elaine.