Hospital pulls sale of bonds
Community Hospital withdrew its $76 million bond offer from the tax-exempt capital market, delaying construction of a new 136,000-square-foot medical facility originally scheduled to open in May 2015, hospital officials told The Daily Sentinel.
Under the original plan, construction of a replacement hospital was contingent on funds generated by the sale of bonds. Without the bond sale, the future of the new hospital is unclear. At minimum, breaking ground on the roughly $45 million project will be postponed several months, Community spokeswoman Karen Martsolf said. Construction is expected to take 15 months.
The hospital was forced to pull the bonds after prospective institutional buyers demanded an 8.5 percent rate of return on the investment, she said.
“The financing cost came in above projections at 8.5 percent and that’s what halted the process,” Martsolf said. “We didn’t feel it was a good fit.”
The interest rate demanded by investors normally reflects an assessment of the risk that the bonds will not be repaid. The greater the risk, the higher the interest rate.
An incomplete public offering statement provided by Community Hospital set forth a variety of risk factors that could prevent it from servicing its bond debt, including a failure to increase patient volume and market share.The hospital did not provide financial records that normally accompany public offering statements.
Community will review alternative financing options in the spring, Martsolf said.
“We continue to work with Cain Brothers to position the future offering and explore alternative methods of financing,” CEO Chris Thomas wrote in an email to the Sentinel. Cain Brothers is a New York City-based investment bank.
Meanwhile, the delay in construction will not prevent Colorado Mesa University from occupying parts of the existing Community Hospital as planned, Thomas wrote.
“CMU will be taking over the southwest corner of our campus in August of 2014 and we are working with them on their plans for that property,” Thomas wrote.
CMU President Tim Foster expressed confidence that Community Hospital will find a way to build the new hospital.
“We just assume they will make it happen,” Foster said. “Chris Thomas is such a smart guy and I think their market timing was unfortunate with the Detroit bankruptcy and those sorts of things, so I assume they’ll back up and make it happen.”
Thomas wrote that the delay only impacts the timing of construction for the new hospital.
“Community Hospital continues to grow and form new and exciting partnerships every day,” he wrote. “The new clinic for Mesa County is scheduled to open Dec. 14 (and) the county has implemented a new benefit plan to take advantage of the high quality, lower costs services at Community Hospital (starting Jan. 1).”
Thomas also pointed to Community Hospital’s recent contract with Internal Medicine Associates as a sign of the hospital’s improving financial condition.
Under the deal, officials with the medical practice become employees of the hospital starting Dec. 1.
“Our second urgent care, retail pharmacy and our new imaging center will be opening on schedule in early 2014,” Thomas wrote.
“We continue to strengthen our financial position to allow us to make the move to the new campus,” he wrote.