Impact Muni Bonds | June 18, 2024

Houston issues $104 million bond to bolster health services

Liana Lan

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Guest Author

Liana Lan

Editor’s note: ImpactAlpha has partnered with HIP Investor to highlight upcoming bond issues with social and/or environmental significance. Disclaimer: Nothing in this post or on shall constitute an offer to sell or solicitation of an offer to buy bonds.

  • CUSIP bond identifier: 414009SG6
  • Issuer: Harris County Cultural Education Facilities Finance Corp.
  • Obligor: Memorial Hermann Health System
  • Impact entity rated by HIP: Memorial Hermann Health System
  • Muni sector: Hospitals, healthcare
  • Closing date: June 27, 2024
  • Bond amount: $103.9 million
  • Coupon: 5%
  • HIP impact rating: 61.5 of 100 connoting “net-positive impact”
  • Opportunity Zones located in the issuing entity: 105 Opportunity Zones, encompassing 451,500 of 4.8 million residents in Harris County, Texas
  • Climate threat resilience rating: 13.3 of 100, connoting “very high climate risk”

The Houston metro area, population 2.3 million, swelled by nearly 140,000 people last year. The growth has put pressure on the infrastructure and services of America’s fourth-largest city, including its healthcare systems. 

To handle the increased patient load, the Harris County Cultural Education Facilities Finance Corp. is issuing a $104 million municipal bond to finance facility and system improvements within the nonprofit Memorial Hermann Health System, whose patient admissions grew 6.1% last year. 

Included in those target improvements is a shift to a new electronic health record, or EHR, system, hospital bed floor expansion and campus expansion. The expansion projects aim to serve increased patient flow. 

HIP impact analysis

HIP’s rates the Memorial Hermann Health System 61.5 on a 100 point scale, connoting “net positive.”

HIP’s data-driven approach measures the impact of 5,032 individual hospitals and associated systems across the US via 15 material metrics. Memorial Hermann Health System’s “net positive” rating is driven by the system’s ability to treat difficult case mixes and provide charity care  – plus simultaneously being environmentally progressive. 

The system’s case mix index reflects the diversity, complexity and severity of patients treated at a hospital. A higher value means the hospital treats more complex health cases. Memorial Hermann Health System’s case mix index of 2.3 is higher than the US health system average of 1.9. 

Despite having a more complex case mix, the Memorial Hermann Health System provides life saving care for the patients who have more involved health needs. For example, the system reports a death rate of 10% from heart failure patients, below the 12% average of US hospitals tracked by Medicare and HIP Investor. 

Memorial Hermann Health System also leads in charity care, with its total share of philanthropic revenue coming in 2.5 times higher than the national average. The system’s dedication to addressing social determinants of health is apparent in its ESG initiatives.

The system has some improvement potential that could be solved with added capacity. The median time patients spend in emergency rooms is 13% higher, or about 28 minutes longer, than the national average.

Memorial Hermann Health System also excels in the HIP “Earth” pillar with a rating of 92.7 of 100, due to achievements in sustainable building and operational management. Over the past 10 years, Memorial Hermann has been recognized by the US EPA as an Energy Star Partner of the Year,. with a 30.9% reduction in energy usage and 13.7% reduction in its total greenhouse gas emission since 2008. 

In the US, 8.5% of greenhouse gas emissions are attributed to health care.

Climate threat

Harris County, Texas, ranks among the top 20 large US counties facing the greatest future climate threats. Climate-driven disasters, like hurricanes, flooding and tornadoes, have frequently disrupted infrastructure and life in the Greater Houston area. Harris County Texas losses amount to $1.2 billion annually from hurricanes, underscoring the need for proactive measures to enhance resilience against climate change.

HIP’s climate threat resilience ratings gauge the prospective investment risk and region-specific capacity to withstand climate challenges. Constructed on a comprehensive framework, it integrates factors such as the vulnerability of residents to natural hazard events, the preparedness of state policies addressing climate risk, and the resilience of the built environment.

In 2001, Tropical Storm Allison widespread flooding bursting into the basement of Memorial Hermann-TMC, short-circuiting key electrical components and disabling the hospital’s emergency backup power generator. More than 600 patients were safely evacuated, albeit in hot and damp conditions. 

Due to the projected increases in both temperature and mobility needs, more healthcare facilities will be at risk to heat-related damage, extreme storms, and higher precipitation and/or disruption. Health issues such as heatstroke, respiratory illness, cardiovascular disease and insect-borne disease are likely to be aggravated.

The Harris County Cultural Education Facilities Finance Corp.’s bond will fund key projects for Memorial Hermann Health System to help accommodate growing patient volumes and improve healthcare delivery in the Greater Houston area. Enhancing infrastructure efficiency and resilience is crucial, especially with the high climate risks in Harris County, Texas.

DISCLOSURES: HIP Investor Inc. is a state-registered investment adviser in several jurisdictions, and HIP Investor Ratings LLC is an impact-ratings firm evaluating impact and ESG on 400,000 investment ratings, including 126,000 municipal entities, 267,000 muni-bond issuances, and 14,000 corporates for equities and bonds. HIP Impact Ratings are for your information and education – and are not intended to be investment recommendations. Past performance is not indicative of future results. All investments are risky and could lose value. Please consult your investment professionals to evaluate if any investment is appropriate for you, your goals, and your risk-return-impact profile. This is not an offering of securities.

Liana Lan is and ESG impact investing analyst at HIP Investor Ratings.