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Interest rates favorable for hospital bond
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LARNED — Piper Jaffray’s banking spokesmen said current interest rates have created a favorable financial climate for a proposed $18.9 million Pawnee Valley Community Hospital.
Todd Van Deventer and Dustin Avey, vice presidents for Piper Jaffray, Lenexa, presented their financing plan Monday for a proposed $18.9 million bond for a new Pawnee Valley Community Hospital. Piper Jaffray’s updated proposal would offer $18.9 million of bonds over a 25-year term.
Pawnee County would receive a Guaranteed Maximum Price Contract in mid-November with the bond offering expected in late November. Van Deventer said local investors would be invited and welcome to buy the bonds and would be given top priority.
Piper Jaffray would be paid 0.75 percent, or $142,500 for their work. Piper Jaffray’s profile showed the true interest cost would be 4.522084 percent.
Hearing the presentation were the Pawnee County commissioners and Tom Giessel, Tim George and Dick King, members of a Pawnee Public Building Commission (PBC) who will issue the bonds on PVCH. The commissioners and the PBC must choose a banking company to underwrite and sell bonds for the financing of PVCH.
Van Deventer said a key element in the optimum interest rate and the county’s borrowing cost will be favorable bond rating in the A or A-plus range. A conference call with either Moody’s or Standard and Poor’s 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 allows for bank-qualified, tax-exempt bonds.
“We will help you craft the story of the county connected with the budget,” Van Deventer said. “Home and land values continue to be strong with likely future growth.”
Van Deventer said the financial profile is kept “conservative,” with estimates of projected income lower than likely levels of tax revenue. The halfway mark of sales tax collections is estimated at $709,183 for 2011, but an annual estimate of $650,000 was used in the 25-year profile. The county would maintain an aggregate debt service of about $1.3 million over the 25 years. Each 15 basis point (0.15 percent) interest rate above current market conditions would cost Pawnee County an additional $425,000 of interest over the 25 years.
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.
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 through cost reimbursement plus 1 percent.
Van Deventer said other major steps still to be completed are Completion of Documentation, receipt of the Guaranteed Maximum Price Contract, Receipt of Rating, Sale of Bonds and Construction Commencement date.
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.
• 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.
The PBC receives $18.9 million to finance the project and Piper Jaffray makes money by selling the bonds to investors, who also make money on their investment.