A massive construction project is increasing borrowing needs at Tampa General Hospital, which closed its sale of $185 million in bonds late last month.
The facility is taking advantage of its improved credit rating and rising profit margins to take on the debt, which is funding the construction of a 300,000-square-foot addition, some renovations and other capital projects.
Rating agencies, in affirming the hospital's credit standing, did sound cautionary notes about the substantial borrowing that Tampa General has taken on in the last three years.
However, the new construction is necessary to meet growing demands for services, said Steve Short, executive vice president of finance and administration for Tampa General.
"We have been in a heavy growth mode for the last five years," he said. "Discharges in various areas of our facility have been increasing, and we've reached capacity in the current building, primarily in the ER, and we're nearing capacity in some of the other areas."
The new construction is focused on what Short calls the hospital's core areas - increasing space for more capacity in neurosurgery, cardiovascular procedures and neonatal care.
Tampa General has been able to build on its position as the academic medical center associated with the University of South Florida, and it has benefited from a relatively stable market share, according to Moody's Investors Service. Discharges are up 8 percent and surgeries are up 12 percent in fiscal year 2005, Moody's said.
Revenues at Tampa General have been on a roll over the past six years, increasing 85 percent from 2000 to 2005, while expenses have increased 73 percent over the same time period. Operating margins have ranged from 4 percent to 4.9 percent in fiscal years 2003 to 2005. The hospital held $245.5 million in cash and investments on June 30, 2006.
"We're in much better shape than in 2003," Short said. "We were rated BBB+ in 2003, and now we're rated A-. Rates are so low now that it makes it easier from a debt service standpoint."
Still, rating agencies voiced concerns over the size of Tampa General's borrowings. Moody's noted that the new bonds "will increase leverage to a much larger degree than originally expected as recently as late 2005."
Tampa General's total outstanding debt will reach $389.6 million, Moody's reports, adding that "the current financing will fully utilize the hospital's debt capacity without substantial growth in cash flow and liquidity."
"I think we've proven that we have a good five- to six-year track record of coming through with what we've told them," Short said. "I believe we're heading in the right direction."