Pittsburgh’s Top Employer Sells Market-Lagging Debt: Muni Deals
University of Pittsburgh Medical Center is borrowing $225 million this week as hospital securities trail the $3.7 trillion municipal-bond market for the first time since 2008.
The facility’s debt offerings are among the $3.7 billion of long-term muni issues scheduled for sale this week, down from $4.2 billion last week, data compiled by Bloomberg show.
The system, Pittsburgh’s biggest employer, with 14 percent of its workforce in 2012, is offering $125 million in revenue bonds through the Pennsylvania Economic Development Financing Authority and $100 million through the Monroeville Finance Authority to refinance debt, deal documents show.
The center has $3.26 billion in debt, and plans to issue as much as $315 million each fiscal year through 2018, according to deal documents.
Moody’s Investors Service ranks the obligations Aa3, fourth-highest, citing the facility’s “leading and growing market position in western Pennsylvania.” It changed the outlook to stable from positive in June because of litigation with Pittsburgh, Pennsylvania’s second-largest city. In March, local officials sued the center, saying it’s not a “purely public charity” and thus shouldn’t be exempt from payroll taxes.
The hospital also “faces considerable competitive and financial risk over the next two to three years,” said Standard & Poor’s, which rates the debt A+, fifth-highest. Its largest competitor, West Penn Allegheny Health System, has completed a merger with Highmark Inc., S&P said.
“The competitive insurance market benefits the entire community but decreases UPMC’s profitability,” Susan Manko, a spokeswoman for the hospital, said in an e-mail. “It has always been our strategy to be ahead of the curve. In the midst of global economic challenges, UPMC has been and will continue to be strongly positioned.”
Hospital bonds are losing 3.8 percent this year through Sept. 19, compared with a 3.7 percent drop for the entire municipal market, Bank of America Merrill Lynch index data show. That’s the first time the debt has underperformed since 2008.
Governments are borrowing with benchmark yields at the lowest level since August. Individuals pulled about $1.1 billion from muni-focused mutual funds in the week through Sept. 18, the least in six weeks, Lipper US Fund Flows data show.
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