UNC Health Care set to borrow $250M to build surgical tower

UNC Hospitals has rejiggered the proposed location of a planned 6-story surgical tower in Chapel Hill as the hospital system readies to borrow $250 million to build the project, one of the largest bond issues in its 64-year history.

UNC Health Care, which owns or manages 10 hospitals in the state, expects to save millions of dollars from the location change because it won’t require temporarily relocating an ambulance bay and a loading dock at its congested Chapel Hill campus. The surgical tower will now be built at the front of N.C. Memorial Hospital, rather than the rear of the hospital.

The location, approved by UNC Health Care’s board this month, reverses a previous spot the board approved last year, and sets the stage for UNC’s final hurdle: borrowing $250 million on Wall Street by issuing bonds over a number of years. The bonds, which will double UNC Hospitals’ current debt, have already been approved by the N.C. General Assembly and UNC system’s Board of Governors.

The new surgical tower is expected to cost around $177 million; it will house 19 surgical suites to replace operating rooms inside Memorial Hospital, which were built in the 1950s and have been periodically refurbished. Construction would begin next year, around the same time UNC-owned UNC Rex Healthcare opens its $235 million Heart & Vascular Hospital in Raleigh. The Rex project required Rex to borrow $150 million last year.

UNC Health Care is in the midst of major expansions as it seeks to maintain market share against its cross-town rival, Duke University Health System. For example, in a previously announced project, UNC plans a $77 million expansion that will add 29 beds to the organization’s 72-bed hospital in Hillsborough , which opened only last year.

In a June analysis, rating firm Standard & Poor’s noted that in recent years UNC has funded construction projects exclusively through cash flows, without adding to its debt, which currently totals about $240 million. S&P said UNC Health Care is a “healthy system,” with $3.1 billion in annual operating revenue and multiple hospitals spanning the state.

The major liabilities in the UNC health system currently are its 355-bed High Point Regional Health System, which is expected to report an operating loss in 2016 and 2017. Additionally, the UNC Physicians Network, a UNC subsidiary with 37 practices in the Triangle, is a perennial money-loser that is subsidized by UNC Hospitals and by Rex, both of which benefit from the network’s patient referrals.

UNC’s owned or managed hospitals include its Chapel Hill flagship as well as Rex, Chatham, Caldwell Memorial, High Point Regional, Margaret R. Pardee, Johnston, Nash, Lenoir Memorial and Wayne Memorial.

John Murawski: 919-829-8932, @johnmurawski