Feb. 19--As other not-for-profit hospitals are reducing debt, University of Chicago Medicine is planning to borrow more money to finance a significant expansion of its Hyde Park campus.
The medical center has amassed $868 million in long-term debt to modernize its health care facilities and expand to the suburbs. The credit rating agencies were already concerned about the amount of debt before the medical center announced plans Thursday to borrow an additional $200 million to enlarge its emergency room to add trauma services and increase the number of hospital beds by 30 percent.
While the proposal is going to be scrutinized by the Illinois health planning board, which has to approve the $269 million project, the U. of C. medical center also likely will face questions from ratings companies and bondholders about the increased spending. In addition to debt, the medical center plans to use existing cash to pay for the project.
In its regulatory application filed with the state this week, the medical center included a report from a financial adviser that addressed possible concerns over the additional borrowing. The financial adviser, Melio Company, concluded that the medical center will be able to satisfy the debt service payments on $200 million in tax-exempt bonds.
Sharon O'Keefe, president of the medical center, also said in an interview with the Tribune that she does not anticipate that the additional debt will negatively affect the hospital's debt ratings.
"I think our financial performance fundamentally allows us to take on more debt," O'Keefe said.
Despite being highly leveraged, the medical center is considered a low credit risk. Moody's Investors Service ranks the hospital at Aa3, its fourth-highest rating. Fitch Ratings also gave the hospital its fourth-highest grade in its most recent report.
In November, Moody's upgraded the credit outlook for the medical center to stable from negative, citing improved operating performance and the growth of inpatient admissions.
But the ratings company also flagged the U. of C. Medical Center's long-term debt. Moody's said the debt was equal to 56 percent of its $1.54 billion operating revenues in the fiscal year ended June 30, compared with a median of 32 percent for similar credit risks.
The medical center's debt ballooned to pay for a $700 million, 10-story hospital that opened in 2013. More recently, the university has broken ground on a $67 million outpatient facility in Orland Park and a new clinic in the South Loop.
While the medical center's debt has grown, Moody's noted a median decline in debt of almost 2 percent at other nonprofit hospitals in fiscal 2014.
Considering the U. of C. hospital expansion still has to be approved, a Moody's spokesman said it was too early to comment on any effect the proposal will have on the medical center's credit rating.
asachdev@tribpub.com
