Maine Hospital to Borrow $150 Million for Expansion: Muni Deals

Eastern Maine Medical Center, which serves 40 percent of the state’s population, is selling $149.7 million in tax-free debt after similarly rated hospital bonds turned in their best annual performance in three years.

The debt is being issued this week through the Maine Health & Higher Educational Facilities Authority for the nonprofit hospital, which is using the funds to expand its Bangor flagship site with a new tower featuring operating rooms and beds. The $164.6 million project is expected to be completed in 2015, according to bond documents.

“The hospital is undersized for the demand,” said Derrick Hollings, treasurer and chief financial officer for Eastern Maine Healthcare Systems, which operates the medical center. “This will expand its capacity so we can serve more patients.”

The issue is rated Baa1 by Moody’s Investors Service, its third-lowest investment grade, and BBB by Standard & Poor’s, second-lowest. Moody’s said the health-care provider sees minimal competition and “consistently improving operating margins.” S&P said the project is warranted, though there is “ample risk” in building and filling more beds.

Moody’s has a negative outlook on not-for-profit hospitals, saying federal spending cuts and limited reimbursements from insurers will reduce growth.

Hospital bonds ranked BBB earned 13.9 percent in 2012, according to Bank of America Merrill Lynch data. That’s better than the 13 percent return in 2011 and 4.2 percent the year before.

Hospital officials said they hope to achieve a total borrowing cost in the mid-to-low 4 percent range for the debt, which has a final maturity in 2043, Hollings said.

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