"The Ronan Report" provides insight about the activities at the Western Maryland Health System in Cumberland, Maryland, and about the changes taking place in healthcare today from a CEO's perspective.

Thursday, October 23, 2014

Refinancing Our Bonds

In 2006, we financed the new hospital through a bond offering with HUD's FHA 242 Hospital Financing Program.  We went to the traditional rating agencies and couldn't get an investment grade rating at the time due to the amount of debt that we would be incurring.  HUD was more than happy to assist, and the process went much better than we had expected.  

The only issue was the continuing oversight of WMHS required by HUD's bond covenants.  They required WMHS to submit a number of transactions for approval, i.e. anytime we changed our bylaws, made a major change (like joining the Trivergent Health Alliance), etc.  Earlier this year, we began to pursue the refinancing of our bonds, although the HUD relationship was far less onerous than anticipated.  

We contacted Standard and Poor's and they agreed to assess WMHS for an investment grade rating.  Kim Repac and I presented to the rating analysts from Standard and Poor's in September, and we were approved for a BBB stable rating, which is investment gradeOnce the approval was received, a lot of work began between the WMHS team, our attorneys and our consultants.  Kim and I flew to Boston last week and presented to financial and investment analysts.  Then, the next day we did a webinar for analysts from all over the country.  Lots of questions regarding our perspective on health care, our value- based care delivery model and how it differs from volume-based care, and even some questions on Ebola.  

When we first presented  the concept of refinancingto our board, we were told by our consultants that we could expect a 4% savings, depending where the interest rates were at the time.  We set a target of 10%, which would have been around a $25 million net present value (NPV) savings.  By the time we went out to the market this past Tuesday, interest rates were very favorable and the result was a NPV of $47.1 million dollars or a 19.94% savings of refunding the bonds.  Through this refinancing, we will save WMHS $47 million over the next 20 years and reduced the average life of the bonds by two years and reduced our new hospital debt by $94 million from $333 million to $236 million.  All in a day's work!

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