Refinancing to save hospital millions
Action taken last week by the Adams County Hospital Association by refinancing the lease revenue rental bond used to construct the new hospital back in 2005 will save the hospital several million dollars over the life of the bond issue.
Adams Health Network (AHN) President and Chief Executive Officer Tom Nordwick met with the five-member board and explained the process and history of the bond issue which was originally approved in 2003 for $40 million. He noted that hospital-generated funds and money approved by local and county governmental agencies from the Community Economic Development Income Tax (CEDIT) have been used to date to make semi-annual bond payments.
Nordwick noted that with the dramatic drop in interest rates, hospital officials decided to seek a refinancing procedure to lower payments. He stressed that an Indiana State Board of Accounts report indicated the bond issue "is not a direct liability to the county itself, but is secured by the tax pledge of CEDIT funds and the moral obligation of the state of Indiana."
After the hospital association — which consists of chairman Paul Zurcher, vice chairman Kathryn Strickler, secretary John Schultz, and new members Stan Mosser and John Kintz — approved the refinancing, Nordwick and hospital attorney Adam T. Miller met with the Adams County Commissioners at their weekly meeting to discuss the proposal. The commissioners passed a resolution adding their okay and the the issue was approved by the Adams County Council the following day.
Adams County Council member DuWayne Herman said he felt it was important the county has AMH and stressed the importance of keeping the institution as an independent hospital.
"Worst case scenario, if they were sold, it literally would become a band-aid station for one of the bigger hospitals, such as Parkview or Lutheran," said Herman.
According to Nordwick, the refinancing over the life of the bond issue, with the final pay off due now in February of 2033, will save about $250,000 per year. But taken in context at today's monetary value, the actual net present value of the savings will be closer to $2.3 million.
He said the bonds sold back in 2003, which sold out in a matter of days, will become callable August 1, 2013. The proceeds from the new bond issued will be placed in an escrow account to pay off the original bond issue. Hospital revenue and CEDIT funding will be used to make payments on the new bond issue until it is paid off in February of 2033.
The new bonds will be AA-rated from the Indiana Bond Bank and should carry an interest rate of under three per cent. Although bonds will be available for purchase initially through what Nordwick called a "friends and family" offering (to local individuals through their brokers), bonds will also be sold state-wide, nationally, and through or to investment banks..
Nordwick said the initial bond issue was accomplished without an increase in property taxes in Adams County, which was a key component to getting the issue approved. The CEDIT money helps pay the interest on the bonds and Nordwick said in the seven years the bond has been in existence an average of $1.2 million in CEDIT money has been received by the hospital each year (the lowest annual amount ever received was $896,000).
Nordwick said the refinancing procedure "only makes sense, especially with the drop in interest rates. It lowers our payment, frees up additional money that can be used in other ways at the hospital, and reduces the overall debt liability.
—Jannaya Andrews contribued to this story.