LARNED – The second of two prospective banking groups made a sales pitch to the Pawnee County Commissioners Monday.
Todd Van Deventer, vice president for Piper Jaffray, Lenexa, said financing a proposed $18 million bond for a new Pawnee Valley Community Hospital through the Pawnee Public Building Commission (PBC) is the best way to fund the project.
Van Deventer proposed $18.8 million of bonds over a 30-year term. He said everything is negotiable, including the term, which could range from 20 to 30 years.
Van Deventer said creating the PBC is the first step in the process. Other major steps are completion of documentation, receipt of the guaranteed maximum price contract, receipt of rating, sale of bonds and construction commencement date.
The PBC receives $18 million to finance the project and Piper Jaffray makes money by selling the bonds to investors, who also make money on their investment.
"Everything is ready to go on financing," Van Deventer said. "The biggest factor is the county has the ability to levy taxes to pay the debt."
The commissioners must choose a banking company to underwrite and sell bonds for the financing of the new Pawnee Valley Community Hospital. Van Deventer said Piper Jaffray is the leading underwriter for PBCs, health-care, bank qualified and non-bank qualified bonds in Kansas. Piper Jaffray ’s investment banking group has recently completed a $47 million bond for the Hays Medical Center.
The commission also must select a bond counsel, likely to be Gilmore-Bell, which must be approved by the PBC, Pawnee commission and the Pawnee Valley Community Hospital board.
Van Deventer said several other primary documents will be required.
* A lease agreement between the county and PBC sets up the mechanism for the county to repay the bonds.
• A sub-lease agreement or pledge of revenues between Pawnee County and Pawnee Valley Community Hospital details any covenants between the county and hospital and sets forth a pledge of revenues if needed. The hospital helps repayment with hospital revenue.
• The bond resolution and bond purchase agreements authorizes the issuance of bonds and locks in the final terms or interest rate.
•The preliminary and final official statements discloses relevant information of the project and Pawnee County for bond investors.
Van Deventer said a key element in keeping the interest rate low is a favorable bond rating from Moody’s or Standard and Poor’s. A conference call with interested parties will present county and hospital financial statements, financing details and the Preliminary Official Statement which describes the project, Pawnee County and the source of repayment. An "A" bond rating would allow for bank-qualified, tax-exempt bonds.
"Key factors in rating will include fund balance, sales tax revenues, tax base, major employers and budgeting process," Van Deventer said.
Based on current legislation for bank-qualified loans, Van Deventer said a single bond is limited to $10 million; so two bonds would have to be issued, one in 2011 and one for 2012 for Pawnee Valley’s project if the county chooses to go that direction.
Banks, non-bank entities and individuals would purchase the bonds, which are considered safe investments because they feature guaranteed revenue.
"Having two bonds will save money on interest costs," he said. "We want just enough orders to buy the bonds."
Pawnee Valley owns a critical care access license, which is certified to receive cost-based reimbursement from Medicare. The reimbursement is intended to improve the financial performance though cost reimbursement plus 1 percent.