- On Thursday, Cleveland Clinic was set to become the first non-profit healthcare organization to issue a century bond—a rare debt issue even in other sectors. According to Cleveland Clinic's chief financial officer Steve Glass, the ultra-long $400-million bond was attractive to the hospital because it affords the flexibility to fund new technology and partnerships.
- The century bonds will represent 12% of Cleveland Clinic's total debt. These kinds of deals are more common among universities because they are perceived to have a longevity not shared by many companies; 12% is a fairly modest figure compared to the percentage of total debt carried by universities.
- According to Glass, the health system plans to use the funds to expand its cancer center and operations in Florida, as well as raise new revenue and leverage intellectual capital over the long term.
Moody's notes that more hospitals are likely to follow suit as a result of ongoing consolidation in the healthcare industry. And according to Jay Sterns, director of public finance at Barclays, there are at least 15 to 20 tax-exempt healthcare organizations with the right profile to sell century bonds.
That said, Cleveland Clinic was an especially good candidate for this kind of deal because the hospital has an exceptional reputation and is likely to still be around in 100 years. Few other health systems can say the same in the light of ongoing uncertainty in the industry, including the trial-and-error shift from fee-for-service for value-based reimbursement. On top of that, as outpatient care becomes more profitable, many smaller hospitals may close before the lengthy bonds would come due.
The Cleveland Clinic bonds received a rating of Aa2 from Fitch Ratings. The offer will be managed by Barclays and JPMorgan.
"We saw the 100-year funding option as a very good opportunity for us given the combination of low borrowing costs and investor interest," Glass said.