Thu 09/30/2021 10:44 AM
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Relevant Documents:
Press Release (Sept. 28)
Quarterly Financial Package for June 30 (Aug. 27)
Press Release (July 30)
Notice (June 30)
Audited Financial Statements for June 30, 2020
Audited Annual Disclosure for June 30, 2020
Issue Details: Series 2012A; Series 2017; Series 2020
Official Statements: Series 2012A; Series 2017; Series 2020

Tower Health, operator of Reading Hospital and five others in Pennsylvania, has announced a series of actions designed to strengthen its system and “establish a clear path forward for decades to come.” The company’s board approved a nonbinding letter of intent with Trinity Health Mid-Atlantic for the sale of Tower Health’s Chestnut Hill Hospital plus “more than a dozen” of Tower Health’s surrounding urgent care centers. Purchaser Trinity Health Mid-Atlantic is a member of Trinity Health, which itself has 92 hospitals and 100 continuing care locations throughout the country, according to the press release. The board also approved the closing of Jennersville Hospital effective Jan. 1, 2022, after an orderly closing process, according to the press release.

Tower Health’s long-term debt as of June 30, 2020 (the date of its last available audited financial statements), was $1.32 billion, comprising $510 million Series 2020 Berks County Industrial Development Authority hospital revenue bonds, $640 million Series 2017 Berks County Municipal Authority hospital revenue bonds and $165 million Series 2012 Berks County Municipal Authority hospital revenue bonds.

Tower Health is a tax-exempt not-for-profit corporation based in West Reading, Pa., that provides inpatient, outpatient and emergency care for residents of the greater Berks, Montgomery and Chester county areas through its subsidiaries, according to its audited financial statements. Tower Health is the parent of Reading Hospital, its flagship hospital, and five additional hospitals in the Chester/Montgomery/Philadelphia areas: Brandywine Hospital in Coatesville; Chestnut Hill Hospital in Philadelphia (to be sold to Trinity); Jennersville Regional Hospital in West Grove (soon to be closed); Phoenixville Hospital in Phoenixville; and Pottstown Memorial Medical Center in Pottstown. The five hospitals other than Reading Hospital, including Jennersville, were acquired by Reading Health System in 2017 from Community Health Systems, after which the newly formed health system changed its name to Tower Health, according to a press release announcing the acquisition.

Tower Health, Reading Hospital and the five Chester/Montgomery/Philadelphia Hospitals comprise the obligated group on the bonds, which are secured by a pledge of revenue of the obligated group.

Tower Health is the parent of a number of non-obligated group entities, including STC Healthcare Partners LLC, which is the parent company of St. Christopher’s Hospital for Children, a 188-bed facility in North Philadelphia. Tower Health is the managing partner of STC, which is owned by Drexel University and Tower Health in equal shares. Tower Health also operates a network of 22 urgent care facilities, according to its most recent press release, and owns interests in a number of other non-controlled entities, according to its financial statements.

The announcement comes shortly after Tower Health posted its unaudited quarterly disclosure for the period ended June 30, which showed noticeable improvements from an unremarkable 2020 fiscal year.

The Tower Health obligated group’s bond covenants include a long-term debt service coverage ratio requirement of 1.1x, measured annually in June. The obligated group was not in compliance for its fiscal year ended June 30, 2020, and consequently engaged an independent consultant to advise on possible steps to enhance future operating results to meet the DSCR test going forward, according to the audited financial statements. However, no default occurred under the bond documents because the obligated group began corrective action with its engagement of the independent consultant, the financial statements say.

Tower Health’s annual audited financials for the 2020 fiscal year show that it had a DSCR of just 0.46x for the 2020 fiscal year, but the ratio would have been 1.63x after adjusting for Covid-19-related expenses. The fiscal year 2020 DSCR calculation is provided below:

However, for the period ended June 30, the Tower Health obligated group’s unaudited long-term DSCR was 2.58x, according to quarterly financial statements posted to EMMA on Aug. 27. Of note, $50 million of CARES Act funds were included in revenue for the 12 months ended June 30.

In addition to pursuing a disposition of two of its hospitals, Tower Health also recently announced a strategic alliance with Penn Medicine, also known as the University of Pennsylvania Health System. According to a July 30 press release, the Tower Health board signed a nonbinding letter of intent “to begin the process of developing an alignment model with Penn Medicine based on its renowned reputation for clinical excellence, compassionate care, leadership in research and innovation, and commitment to the community.” Rather than a merger of the two hospital systems, the strategic alliance will be “focused on the joint development of innovative programs and initiatives that provide exceptional care and value and a high-quality patient experience,” according to the press release.

To that end, on Aug. 25, Tower Health announced a plan to transition the Tower Health Transplant Institute to the Penn Transplant Institute, effective by mid-December 2021, according to the company’s quarterly disclosures. The transition will involve transplant surgical procedures being performed at the Hospital of the University of Pennsylvania, while Reading Hospital provides pre- and post-transplant treatment and screening on-site, the disclosures state.

According to EMMA disclosures, at the direction of a majority of bondholders, the prior bond trustee was removed and UMB Bank was appointed as the successor trustee, who has since retained Mintz, Levin, Cohn, Ferris, Glovsky and Popeo as counsel and Houlihan Lokey as financial advisor.
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