Community Hospital prepares to shop $45 million in debt to fund new building
Community Hospital is preparing to place millions of dollars in revenue bonds through an investment bank headquartered in New York City, Community Hospital President and CEO Chris Thomas said.
The bonds will be sold, or placed, to pay the entire cost of a proposed 136,000-square-foot new hospital, Thomas said.
Wipfli, a leading accounting and business consulting firm, declared Community’s revenue bond plan feasible after an extensive review of Western Slope demographics and the hospital’s projected revenue, among other considerations, Thomas said.
Cost of the new building near G and 23 1/2 roads is not certain, but the hospital is “shooting for $45 million.”
A “guaranteed maximum price” could be established as soon this week, Thomas said.
Community’s revenue bonds are likely to be sold to mostly large, institutional investors, probably starting this week, he said.
Cain Brothers, a Madison Avenue investment bank with an extensive history of successfully raising money for hospitals in the tax-exempt capital markets, was wrapping up the hospital’s public offering statement last week, Thomas said.
In addition to underwriting the Series 2013 Tax Exempt Hospital Revenue Bonds, Cain will place them through its extensive contacts in the capital markets, Thomas said.
Cain maintains close relationships with a large network of portfolio managers and traders who invest in the health care sector including “banks, trust departments, investment advisers ... insurance companies,” and “every major bond fund,” according to the Cain Brothers website.
The interest rate, or coupon, the bonds will pay is yet to be determined, Thomas said.
“They will be repaid through the operations of the hospital and (its) current and future reserves and the (Community Hospital Foundation),” he said. “The interest rate ... will be finalized at the completion of the marketing of the bonds.”
Currently, Community holds cash and liquid investments valued at roughly $10 million, enough to cover the cost of operating the hospital for 57 days, Thomas said.
Community was able to cover all of its costs for only four days when Thomas assumed the helm in April 2008, he said.
“When I say it costs us approximately $180,000 a day to run Community Hospital, that’s salaries, that’s expenses, that’s utilities, so that means I can stay open — if everybody and their brother stops paying us — we can stay open for 57 days,” he said. The industry average is 60 days, Thomas said.
Interest paid on bonds of the type Community Hospital looks to place will be tax free to investors, said Ford Keeler, financial adviser at Financial West Group in Grand Junction.
“In general, bonds like that are issued for public purchase. They’re issued by the investment bank and, generally, institutional clients — your big money management firms — have a lion’s share of first dibs on those bonds,” Keeler said. “Whatever is left over, typically, can be purchased by individuals.”
“Generally, the Franklin Templetons, the Fidelitys of the world have the deep pockets and can invest two, three, five billion at a whack. Of course, this issue is not going to be nearly that big,” he said.
The interest paid on such bonds could be as high as 5 percent or more, based on any number of variables, Keeler said.
New income-producing services not currently available at Community that the future hospital plans to offer include labor, delivery, recovery and postpartum services for the obstetrics department, Thomas said.
“Of all the requested services, obstetrics is the one that I get the most requests for,” he said.
The new hospital will have 44 beds, same as the current facility, but instead of mostly semi-private rooms as is the case now, all of the beds at the new facility will be in private rooms.
Currently, no date has been set to break ground on the project, but whenever it begins, Thomas said it will take 15 months to complete.