The Snoqualmie Valley Hospital refinanced $40 million in long-term debt with a revenue bond and limited tax general obligation (LTGO) bond at the May 7 hospital board meeting.
The revenue bond passed 4 to 1; commissioner Gene Pollard abstained from voting. The LTGO bond passed unanimously.
Commissioner Ryan Roberts participated in the meeting by telephone.
Bond financing is the practice of long-term borrowing that typically generates money from investor sales with a fixed-range interest rate. Hospital districts typically pay higher interest rates on bonds because they are “non-rated” entities. They may be
seen sometimes as a risky investment as their net worth isn’t great enough to be rated by an agency like Standard & Poor’s.
“If (the interest rate is) less than 10 (percent), it’s a benefit,” hospital CEO Rodger McCollum explained.
The revenue bonds, totaling $48.1 million, are a first for the hospital. They were issued to refinance the new hospital’s building lease from Benaroya Companies over the next 30 years, similar to a rent-to-own model, and will fund the purchase of new equipment.
This refinancing is projected to save the hospital $40 million in debt service payments because the interest rates are lower than the original contract’s 10 percent rate.
Revenue bonds do not require a public vote, as they would for a school or city, because they are based on the hospital’s generated revenue and not on taxpayers’ dollars.
“With increased (emergency room) volumes, clinic visits and lab imaging, etc…, we needed about $50,000 or $60,000 extra revenue per month to make the revenue bonds work,” McCollum explained. “We’re going to greatly exceed that with the increased patient visits.”
The LTGO bonds were issued at $34.2 million to refinance existing debt, also at a lower interest rate. This bond is expected to save the district $5.3 million in debt service payments over the next 23 years. Because the bond amount is under the hospital district’s debt limit, $7.2 billion, voter approval is not required. The debt limit for LTGO bonds is .75 cents per $1,000 of assessed value. Property-tax revenue for the hospital is 7 to 8 percent of its budget; most of its revenue is generated from actual operations.
The interest rates will be confirmed next month, but the LTGO bond is projected to reach 4 percent at its early maturity and 6 percent later on.
The revenue bonds are likely to reach a fixed rate of 6.5 percent interest.
As the economy reaches an upswing, interest rates increase, which is why McCollum said it’s “crucial” to set the interest rates as soon as possible.
The history of the hospital and bonds includes a 1993 unlimited tax general obligation (UTGO) bond, which was open to voters because there’s no limit on the amount of taxes a voter can allow with this bond. The UTGO was financed at a lower interest
rate and eventually paid off.
Now, the hospital is refinancing LTGO debt from 2005 that was used to finance the new hospital’s planning and construction.
