BANNER HEALTH 2023 - REPORT LETTER.PDF
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John J. Fries T (602) 440-4819 Email:jfries@clarkhill.com Clark Hill 3200 N. Central Avenue, Suite 1200 Phoenix, AZ 85012 602-440-4800 271046216.v1-4/4/23 April 5, 2023 To: Board of Supervisors Board of Directors Maricopa County, Arizona The Industrial Development Authority of The County of Maricopa Re: Not to Exceed $450,000,000 The Industrial Development Authority of the County of Maricopa Revenue Bonds (Banner Health) Series 2023 Ladies and Gentlemen: At its April 11, 2023, meeting, The Industrial Development Authority of the County of Maricopa (the “Authority”) will be asked to grant approval to the financing for Banner Health, an Arizona nonprofit corporation, as Obligated Group Representative under the Master Indenture for Banner Health; Banner-University Medical Center Tucson Campus, LLC, an Arizona limited liability company; Banner-University Medical Center South Campus, LLC, an Arizona limited liability company; and Wyoming Medical Center, Inc., a Wyoming nonprofit corporation (collectively, the “Obligated Group”) and adopt a resolution authorizing the issuance and sale of the bonds as described above (the “2023 Bonds”). This letter provides a summary review of the proposed transaction. THE AUTHORITY The Authority is an Arizona nonprofit corporation, formed with the permission of Maricopa County and incorporated under and pursuant to the Arizona Industrial Development Financing Act, Title 35, Chapter 5, Arizona Revised Statutes, as amended (the “Act”), and the Authority is designated by law to be a political subdivision of the State of Arizona. THE APPLICANT/BORROWER Banner Health is designated as a 501(c)(3) organization under the Internal Revenue Code of 1986, as amended (the “Code”). Banner Health, either directly or through affiliates, currently operates hospital, medical and healthcare facilities in Arizona, California, Colorado, Wyoming, Nebraska, and Nevada. The Authority has previously issued bonds for the benefit of Banner Health in 2016 (approximately $800 million); in 2017 (approximately $460 million); in 2019 (approximately $540 million) and in 2021 (not-to-exceed $305 million). Banner Health is current on all of its obligations under those bonds and currently enjoys an AA- rating from both Standard and Poor’s and Fitch. Board of Supervisors Maricopa County, Arizona Board of Directors of The Industrial Development Authority of the County of Maricopa April 5, 2023 Page 2 THE PROJECTS Banner Health is developing a plan of finance for new financing initially estimated at approximately $450,000,000 under various fixed and floating rate instruments and commercial paper, including a portion to be financed through the Authority. Banner Health, as Obligated Group Representative, (“Borrower”) has requested that the Authority issue its 2023 Bonds in one or more series or subseries from time to time, as taxable or tax-exempt debt, or a combination of taxable and tax-exempt debt, in an aggregate principal amount not to exceed $450,000,000, the proceeds of which will be loaned to the Borrower to finance, refinance and/or reimburse the Corporation as follows (collectively, the “Projects”): (1) for the costs of construction, renovations, equipment acquisitions and improvements to the Corporation’s health care facilities located at Banner Gateway Medical Center in Gilbert, Arizona; (2) for the costs of construction, renovations, equipment acquisitions and improvements to the Corporation’s health care facilities located at Banner Desert Medical Center in Mesa, Arizona, including, construction, furnishing and equipping of a new 5-story addition to an existing patient tower; (3) to refinance prior bonds that financed the costs of construction, furnishing and equipping of patient care and clinical 16 story tower at Banner-University Medical Center Phoenix in Phoenix, Arizona and a 9-story tower at the Banner-University Medical Center Tucson in Tucson, Arizona; and (4) to pay costs of issuance of the Series 2023 Bonds. The Borrower is currently reviewing whether it can effectuate a rate conversion under the Prior Bonds. If the Borrower can implement the rate conversion, the amount of the 2023 Bonds issued will be reduced by the amount designated to refund the Prior Bonds. NOTIFICATION TO ARIZONA ATTORNEY GENERAL As required by the provisions of Arizona Revised Statutes, Section 35-721.F, the Authority will notify the Arizona Attorney General of the Authority’s intention to issue the 2023 Bonds. PUBLIC HEARINGS A public hearing pursuant to Section 147(f) of the Internal Revenue Code of 1986, as amended (the “Code”), relating to the issuance of the 2023 Bonds, was held in Maricopa County on April 5, 2023. A Report of Public Hearing has been presented to and will be considered by the Board of Supervisors Maricopa County, Arizona Board of Directors of The Industrial Development Authority of the County of Maricopa April 5, 2023 Page 3 Maricopa County Board of Supervisors at its April 26, 2023 meeting. A public hearing pursuant to Section 147(f) of the Code will also be held in Pima County on April 14, 2023, and a Report of Public Hearing will be presented to the Pima County Board of Supervisors for approval at its May 2, 2023, meeting. ALLOCATION FOR TAX EXEMPT FINANCING No allocation of the Arizona “volume cap” is required for the issuance of the 2023 Bonds as this financing is for a nonprofit 501(c)(3) entity. FINANCING PARTICIPANTS The major participants in the financing are as follows: Issuer: The Industrial Development Authority of the County of Maricopa Issuer Counsel: Clark Hill, PLC Applicant/Borrower: Banner Health Bond Underwriters: Morgan Stanley, Citi, J.P. Morgan and Goldman Sachs Bond Counsel: Hawkins, Delafield & Wood LLP Master Trustee U.S. Bank, National Association Bond Trustee The Bank of New York Mellon Trust Company Applicant/Borrower Counsel: Lewis Roca Rothgerber & Christie LLP Bond Underwriter Counsel: Dentons US LLP Borrower’s Financial Advisor: Kaufman Hall & Associates Board of Supervisors Maricopa County, Arizona Board of Directors of The Industrial Development Authority of the County of Maricopa April 5, 2023 Page 4 PRINCIPAL FINANCING DOCUMENTS Document Parties Resolution of the Authority Master Indenture Multiple Supplemental Bond Indentures Issuer Issuer and Master Trustee Issuer and Bond Trustee Loan Agreements Series 2023 Obligations Issuer and Borrower Borrower Official Statements Borrower and Bond Underwriters One or more Bond Purchase Agreements Borrower, Issuer and Bond Underwriters PLAN OF FINANCING The 2023 Bonds will be issued pursuant to the Bond Indenture(s), and the proceeds received from the sale of the Bonds will be loaned to Banner Health as Obligated Group Representative pursuant to the Loan Agreement(s) and applied, together with other available moneys, to finance the Projects as described above. The 2023 Bonds will be offered for sale by the Underwriters utilizing the Official Statements and the 2023 Bonds will be purchased by the Underwriters under and in accordance with the terms and provisions of the Bond Purchase Agreements. It is anticipated the 2023 Bonds will bear interest at rates dependent upon the scheduled maturity dates, will be subject to early redemption as provided for in the Bond Indentures and will have an investment grade rating issued by one or more recognized national rating agencies. AUTHORITY APPROVAL At the Authority Board meeting on April 11, 2023, the Authority Board will be asked to grant approval to the application for financing and adopt a resolution authorizing the issuance and sale of the 2023 Bonds. A copy of the resolution to be adopted by the Authority Board is included with this letter. Board of Supervisors Maricopa County, Arizona Board of Directors of The Industrial Development Authority of the County of Maricopa April 5, 2023 Page 5 NO LIABILITY ON THE COUNTY OF MARICOPA Under the provisions of A.R.S. § 35-742, the County of Maricopa shall not in any event be liable for the payment of the principal or interest on the 2023 Bonds of the Authority or for the performance by the Authority of any of its obligations with respect to the 2023 Bonds nor shall any agreements or obligations of the Authority constitute an indebtedness of the County of Maricopa within the meaning of any constitutional or statutory provision whatsoever. BOARD OF SUPERVISORS APPROVAL The Maricopa County Board of Supervisors is requested, at its meeting on April 26, 2023, to act as required by law to adopt a resolution approving the proceedings of the Authority for the issuance of the 2023 Bonds. TRANSACTION CLOSING Assuming the required approvals are received, it is anticipated that the 2023 Bonds will be issued in June, 2023. LEGAL COUNSEL RECOMMENDATION As counsel to the Authority, we have reviewed drafts of the principal financing documents, and have been advised that these documents are now in substantially final form. Based upon our review of such and our review of the proceedings of the Authority to date relating to the proposed issuance of the 2023 Bonds, we believe the financing documents and proceedings are in substantial conformance with the policies and guidelines of both the Authority and the Maricopa County Board of Supervisors and that the Resolution presented to the Board of Supervisors is in form and substance acceptable for the Maricopa County Board of Supervisors to adopt.