Allina’s Debt to Big Banks Increases by 60 Percent

By

Mathew Keller and Jordan Ash

Allina Health claims it needs to take $10 million out of the pockets and healthcare of its nurses. The question is why, which begs a look at Allina’s finances. A check of Allina’s books, however, makes one question whether the company really is in good hands.

For starters, the amount Allina pays annually to big banks has grown to $60 million dollars a year. Allina’s current debt of $880 million dollars, in fact, represents a whopping 60 percent increase from just 10 years ago when Allina had $550 million in debt. Taking on such debt is not cheap, either. Just as Allina increased its debt by more than half, it also paid out over $200 million dollars to investment bankers in financing costs alone. Piper Jaffray in particular has underwritten over $1.3 billion dollars of Allina debt dating back to 1993, and with other investment banks has enjoyed more than $16 million dollars in issuance costs from Allina. That number does not even include the interest to bondholders– Allina will pay $40.3 million dollars in interest in 2016.

And with Penny Wheeler at the helm, we can expect more of the same in the future. As one market commentator put it, “with a leadership transition, the philosophy on debt issuances has changed and Allina will likely fund capital needs with debt on a more routine basis.” In other words, the old days of a mere $880 million dollars in total debt and $60 million in annual debt payments will soon be a thing of the past.

But why so quick to sign the loan papers? Allina Health boasted a net revenue figure of about $150 million in its most recent financial disclosures. “Net revenue” is a fancy word for profit, since Allina is technically a “not-for-profit” company. Rather than save to spend like most households have to do, however, Allina keeps taking on more loans and leaving millions and millions of dollars in the bank (more on that later). If these loans are to finance improvements in patient care, though, why take money from the healthcare of nurses to pay for it? They are the bedside care providers, and their health makes a difference in patient care. That would be like your family cutting the food budget to finance that shiny new car.

To be fair, Allina’s annual debt payments when taken in light of its annual revenue equates to 1.7 percent, a figure that credit ratings agency Fitch found to be below a rating category median of 2.4 percent. But as a community, we ought to ask Allina, why does our local hospital need to take on hundreds of millions of dollars of additional debt?

At the end of the day, it’s about expansion. Not expansion to serve patients, but about acquiring or being acquired. Where does Allina’s insatiable desire to getting bigger come from? Let’s hope it’s not from somebody’s ego and a need to see more of their name on the sides of buildings.