Continuing to buck market practice, the New Jersey Health Care Facilities Financing Authority plans to sell its next two bond issues through competitive bids and remain in compliance with state guidelines that encourage the issuance of competitively sold debt.
Already in the past year, the authority has sold four competitively bid refundings totaling $234 million. The authority still sells the majority of its debt on a negotiated basis.
The authority will now sell two more competitive issues: a $65 million newmoney deal for JFK Health Systems in Edison, and a $5 million refinancing of debt for Kennedy Health Facilities Inc., a nursing home in Sewell. The current Kennedy debt has Federal Housing Administration insurance.
The authority has not set a sale date for the issues, but market sources say the deals could hit the market before the end of the year.
The authority's plans for competitive sales defy market tradition, market sources say, because health care bonds are often rated lower than other debt, and because refundings are complex and usually require negotiated sales.
Authority officials say their motivation for issuing competitively bid debt comes from executive orders issued by former Gov. Jim Florio and current Gov. Christine Todd Whitman.
In May 1993, Florio banned most negotiated bond issues following a bond scandal that involved his chief of staff, Joseph Salema.
Last week, Whitman issued her own executive order, saying negotiated sales may be conducted for large or complex credits, but that the state should continue to sell debt competitively when appropriate.
"We anticipate keeping competitive deals as part of our repertoire," said Edith F. Behr, executive director of the health care financing authority. "We were challenged by the first executive order. We will continue to issue competitively."
The authority, which has $4.3 billion of outstanding debt, plans to continue issuing competitively bid bonds even though most of the authority's credits are complex. Behr described the authority debt, which is supported by revenues from hospitals and health organizations, as "story bonds," adding that before the executive orders, the agency sold all its bonds through negotiated sales.
But the authority has been able to earn strong present-value savings with competitive refundings of insured health care bonds. Behr also expects the authority's competitively bid, new-money issues to sell just as well as if done through a negotiated sale. "We were comfortable that if we could get triple-A-rated insurance, investors would feel compfortable with the credit," she said.
From January to September, New Jersey issuers sold 58% of their debt competitively. The state had the highest portion of competitively bid debt among the nation's top 10 issuers.
The executive orders "obviously had a lot to do with a drop in negotiated orders," said John C. Glidden Jr., a partner and managing director at E.A. Moos.
Before Florio's mandate, New Jersey's negotiated issuance volume was closer to the national average of 66%, Glidden said. "It clearly pushed a lot of business to the competitive end," he said.
Glidden questioned the value of competitively sold health care financings, saying their complexity makes the negotiated route preferable for issuers. And in a down market, there is more flexibility in a negotiated financing to postpone a sale until market conditions are right, he said.
"They might have a problem down the road," Glidden said of the authority. "They're better off doing a negotiated sale."
