Hospital board reviews bond refunding procedures

By Steve Moyer

Nevada Daily Mail

The Nevada Regional Medical Center had just two items on the agenda for a special meeting Tuesday night, in the third floor conference room of the Medical Arts building -- bond refunding and adjusting a contract with Dr. William Turner, a board member. Adjusting the contract with Turner was the second item, and after wrestling with bond refunding for three hours, the much shorter one.

Turner wished to amend the contract to reduce the number of days he was on call, currently 15, down to 10 days. When the matter came up, Turner left the conference room to avoid a conflict of interest. The board then voted to amend the contract to reflect the change.

The first item on the agenda was bond refunding, a method of reducing the amount of money the hospital would pay out to repay the debt accumulated when the latest addition to the hospital was built.

The board heard two strong proposals for the project, one from Edward D. Jones and one from A.G. Edwards. Both said they felt the hospital would qualify for an investment grade rating for the bond issue, although neither would guarantee that result.

Local agent Tom Hissink, Edward D. Jones highlighted what the company could do for the hospital and then introduced Allen Wright who gave the board more details.

"We have 500 offices in Missouri," Hissink said. "That allows us to put out bonds that will attract investors state-wide."

Wright reiterated the strength of Edward D. Jones' presence in the state and said that it was the largest institution of its kind in the state.

"We're the largest in Missouri, the fourth largest in the United States," Wright said. "We have over 8,500 offices in the United States, the U.K. and Canada. We have 500 plus offices in Missouri."

Wright said the bonds should be well received in the state because the hospital bonds would be exempt from taxes.

"The interest on these bonds are exempt from federal and Missouri state taxes," Wright said. "That makes them very desirable for investors in Missouri and we can access those investors better than anyone."

Wright said all costs of the re-issue would be paid out of the proceeds of the bond sale; Edward D. Jones would underwrite 100 percent of the bond, the hospital would not have to worry about whether all the bonds would sell and said the company could do a five year call instead of the current 10 year, which means the hospital could do a refunding of this issue sooner if interest rates went lower yet.

The proposal from A.G. Edwards was very similar, with Will Douglas explaining that the strength of A.G. Edwards is a dedicated unit that worked with health care entities on bond proposals.

"We have a group of people who do nothing else," Douglas said. "Most of what we do is just this type of issue."

Douglas said the hospital had three potential weaknesses when it came to getting an investment grade rating from Standard and Poor's or other rating institution, all a result of being in a small community.

"There are three potential weaknesses," Douglas said. "Your revenue is dependent on a small group of doctors, there can be a problem with recruitment and retention of doctors and technicians, which can be problematic in small towns and the less diversified economy of a small town."

Douglas said the hospital was to be commended for its financial gains over the past five years and said small hospitals have a difficult time getting a positive rating from New York based rating firms.

"It's unusual for a hospital this size to have an investment grade rating," Douglas said. "The ratings companies are based in New York and hospitals are usually larger than this to get that rating."

Douglas emphasized A.G. Edwards had a specialty unit to handle hospital bond sales.

"Both A.G. Edwards and Edward Jones can sell your bonds," Douglas said. "The difference is that we have a dedicated medical team and they don't."

After both presentations were heard the board discussed various aspects of them with CFO Cindy Buck fielding several questions from the board.

Board president Norm Tuomi said that the board needed to set a minimum amount of savings the refunding needed to produce before going forward with the proposal.

The board looked at financing the proposed information technology system the hospital is seeking to acquire and it may well be part of the bond issue, but there is no certainty.

"We can include new money for the I.T. system but we don't have to make that decision at this time," Buck said.

"We need to set a minimum and say this is what we need to get or the deals off," Tuomi said.

The board was well aware their decision could be second-guessed and took their time to mull over the proposals before coming to a decision.

"This decision will probably be looked at very closely by the city council," Tuomi said. "We need to be able to justify any decision we make."

After debating the merits of each proposal back and forth the board ultimately decided to proceed with the bond refinancing through Edward D. Jones under the assumption the hospital will receive an investment grade rating.

Board member Ron Fisk said he thought the Edward D. Jones proposal looked like it would be a better deal for the hospital.

"I just feel it would be like leaving money on the table to accept the A.G. Edwards proposal," Fisk said. "The Edward Jones deal looks like we'd be much better off."