CHICAGO - A major St. Louis area health-care system plans to sell $335 million of refunding and new money revenue bonds today.

The bonds to be issued by Barnes-Jewish Inc./Christian Health Services are rated AA-minus with a stable outlook by Standard & Poor's Corp. and Aa by Moody's Investors Service. The refunding is expected to generate a present value savings of about $18 million over the life of the bonds, according to Edward C. Malmstrom, a managing director in the health-care finance department at Merrill Lynch & Co., the co-senior manager and bookrunner for the deal.

The issue marks the first by the system since it merged in June.

Rating agency officials and market observers say that the merger between Barnes Jewish Inc. and Christian Health Services System reflects the national trend of alignments aimed at providing complete, cost-efficient networks despite anticipated federal health-care reforms.

The bonds will refund about $267 million of outstanding debt with coupons ranging from 5.65% to 8.75% that Barnes, Jewish, and Christian hospitals have issued since 1985, according to Mary Burlington, a director at Merrill Lynch. The issue contains about $20 million of new money that will finance equipment purchases for the system's Christian Health Services component, Burlington said.

Besides providing the system with significant present value savings, the refunding will allow the system to consolidate its debt under a one legal structure, Malmstrom said. He said that today's bond issue will unite almost all of the debt issued by the system's various components under the system's name.

About $302 million of the bonds will be issued through the Missouri Health & Educational Facilities Authority. The remainder will be issued by the City of Alton, Ill., where two of the system's facilities, Alton Memorial Hospital and Eunice C. Smith Nursing Home, are located.

Because $27.5 million of the outstanding debt was issued by the city of Alton for Alton Memorial Hospital in 1991, the refunding bonds must be issued in Illinois, even though the system's headquarters are in St. Louis.

Barnes-Jewish/Christian Health Services serves the St. Louis metropolitan area through 11 hospitals, four nursing homes, and one retirement home. The entire system has 4,442 licensed hospital beds and 213 retirement apartments. While the majority of the facilities are in Missouri, five are in Illinois.

With the merger, Barnes Hospital and the Jewish Hospital gain access to a primary care system, while Christian Health Services will gain access to advanced tertiary services enhanced by Barnes-Jewish affiliations with the Washington University School of Medicine in St. Louis.

David Peknay, an associate director at Standard & Poor's said that the combination of the two financially strong institutions represents one of the larger mergers he has analyzed.

"This will become more common nationally," Peknay said.

Malmstrom agreed, saying that mergers in the past typically involved troubled hospitals or institutions in two-hospital communities.

In last week's Credit Week Municipal, Standard & Poor's said that the system's strong financial performance is exemplified by its exceptional four times debt service coverage and cash cushion of over eight times.

"Such results have contributed to a strong balance sheet with manageable debt burden and excellent cash position. The system is in a good position for both debt repayment and capital growth," Standard and Poor's said.

In a credit report, Moody's said that the system's debt service remains below average. The rating agency said, "Since management plans to fund future capital needs through operations, future debt service levels will likely remain low, while cash levels may not grow significantly in the near-term."

Despite the newly formed system's financially strong components, both rating agencies said the system will undergo growing pains associated with merging different corporate cultures. Reaching common ground with its physician groups will also be key.

Peknay said that the integration may require a sacrifice of autonomy and prove more challenging and time consuming than anticipated.

The rating agencies also said that the system may face challenges stemming from increasing competition in the St. Louis market from two additional provider networks.

The Barnes-Jewish component of the system is a product of past mergers. In 1988, Barnes purchased the profitable 120-bed St. Peters Hospital in St. Peters, Mo., and the unprofitable 132-bed West County Hospital in St. Louis. In 1992, the Barnes system and the 628-bed Jewish Hospital of St. Louis merged.

Barnes-Jewish/Christian Health Services officials could not be reached for comment.

The two other co-senior managers for the deal are Stifel, Nicolaus & Co. and A.G. Edwards & Sons Inc.

Co-managers for both the Missouri and Illinois bonds are George. K. Baum and Co. and PaineWebber Inc. Co-managers for the Missouri bonds only are Bear Stearns & Co., Dillon Read & Co., First St. Louis Securities Inc., J.P. Morgan Securities Inc., Lehman Brothers, and Mark Twain Bank.

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