LARNED — A presentation by a UMB banking official presented the apparent lowest cost and lowest interest rate for a proposed $18 million bond for the Pawnee Valley Community Hospital.
Scott Crist, vice president and public finance officer for UMB Public Finance, Kansas City, Mo., offered a proposal at a 3.996 true interest cost for $18 million of bonds over a 20-year term. It was the lowest interest rate Pawnee County commissioners and members of the Pawnee Public Building Commission had heard. The average coupon is 3.969 percent and the all-in-cost interest rate is 4.051 percent.
UMB would be paid 0.75 percent, or $135,000 for their work. Bond counsel through Gilmore & Bell will be $75,000. A rating agency fee through Moody’s or Standard & Poor’s would be $15,000. A Trustee fee would be $3,000. Other expenses would be $1,500. Tax sales proceeds during the construction phase would amount to $861,888.
Crist suggested three security provisions that would insure the Pawnee County commission from potential financial liability. The measures would minimize the possibility of Pawnee County being forced to make up a shortfall in the payment of the debt service.
• Debt Service Reserve Fund — A debt service fund could be funded during the construction period from proceeds of the property tax levy. The debt service fund could serve as a resource to draw in the event of any shortfall of revenues of the Pawnee Valley Community Hospital to pay debt service on the bonds. The range would be from $300,000 to $500,000. The average annual debt service would average about $1.37 million.
• Liquidity Covenant — A liquidity covenant could be established requiring the Pawnee Valley Community Hospital to maintain a certain level of days cash on hand to provide liquidity for the hospital and to provide a source of funds to contribute to the payment of debt service.
• Rate Covenant — A rate covenant could be included would require the Pawnee Valley Community Hospital to establish rates for services at whatever level is required to pay both its operating expenses and the debt service payments on the bonds.
Once bonds are available, UMB would make sure that local residents would be able to purchase the bonds through First State Bank.
“We would make sure that residents of Pawnee County have an opportunity to purchase bonds since their support has played such a key role in making this project possible,” Crist wrote. “We would publish a notice of sale in the local newspaper about a week prior to the sale of the bonds.”
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. Commissioners have said they will likely make a decision within a few weeks.
Crist would expect a favorable bond rating in the A or A-plus range. A meeting 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.
Based on current legislation for bank-qualified loans, Crist 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. The bonds would be issued 15 days apart as bank-qualified bonds to take advantage of lower interest rates. The first series of bonds could close as soon as October with the second series closing in January.
“Since the bonds would be sold about 15 days apart, there would be virtually no interest rate risk for the hospital to pursue this structure,” Crist wrote.
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.