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Indiana University Health is about to sell $726 million in bonds to help finance its new downtown hospital, which is now rising from the ground in the first stage of a massive construction project.
The hospital system confirmed Monday that it priced the bonds on June 6 and expects to close on the offering July 6.
The project, estimated to cost $4.3 billion, including support buildings and infrastructure, is one of the most expensive capital projects in modern Indiana history.
The bonds will also help finance a $287 million dollar expansion of IU Health’s Saxony Hospital in Fishers, along with projects at Riley Hospital for Children and IU Health Bloomington.
IU Health said its contractors already have poured thousands of cubic yards of cement for the new downtown project, and the first floor is already up.
The new hospital complex, under construction for more than a year, will sit on a 44-acre footprint just south of the health system’s century-old Methodist Hospital near Capitol Avenue and 16th Street.
It will feature three patient towers 16 stories high, containing a total of 864 patient rooms.
The bond offering comes just months after the Indiana hospitals, as a group, reported they were still dealing with “staggering” financial strain from the pandemic. The Indiana Hospital Association said its members suffered a collective loss of $72 million last year and saw their median operating margin fall to negative 2%.
IU Health, for its part, posted operating income of $120.6 million last year, down from $160.7 million in 2021. When investment losses were included, IU Health reported a net loss of $715 million last year, compared to a gain of $861 million in 2021.
The Indianapolis-based health system plans to issue debt this year as well as over the next several years to support the downtown project, according to Moody’s Investors Services.
All three major credit-rating agencies gave high grades to IU Health, near the top of the investment-grade ratings.
“This rating reflects IU Health’s status as the largest health system in Indiana, with 16 hospitals, a sizable medical group, and an extensive ambulatory presence, which has resulted in the system gaining the leading market share in the four competitive regions it covers,” S&P Global Ratings credit analyst Marc Bertrand said in written remarks.
The bonds are selling through the Indiana Finance Authority in three tranches, a structure designed to keep costs down and maintain flexibility according to The Bond Buyer, a trade newspaper. After the issue, IU Health will have $2.2 billion in debt.
The new downtown hospital will consolidate much of the existing Methodist Hospital and University Hospital, which is about 1.5 miles southwest on the IUPUI campus. The eight-block expansion will extend IU Health’s footprint from 16th Street south to 12th Street and from Capitol Avenue west to Interstate 65.
The start of construction for a large support building and the central utility plant will be this month or early next, the hospital system said.
The new hospital is scheduled to open in late 2027. The architect for the hospital is Indianapolis-based Curis Design, a collaboration of BSA LifeStructures, RATIO Design and CSO Architects. HOK serves as the executive architect.
The construction manager is a joint venture of locally based Wilhelm Construction and Gilbane Building Co. of Providence, Rhode Island.
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All the reports I’ve read suggests that IU Health has $9 billion in cash. It would be interesting to know more about why they are issuing bonds for these projects. I’m genuinely curious.
Simple strategic financing. You don’t want to use up all your cash balances on one project in 3-4 years. But you use that strong cash balance as back-up collateral for any failed bonds or lack of repayment and to help get a better credit rating. Financing the cost over the years will help maintain a steady cash reserve (in case anything like a pandemic comes along where all the cash is needed.
Not much different than some of us having the cash to buy a car, but would rather preserve some of that cash on hand and finance some of it monthly.