Wishard construction project enjoying cheap debt

The Health & Hospital Corp. of Marion County got good news in its first round of borrowing to finance a new Wishard
hospital: The cost is less than expected.

Hospital officials, working through Citigroup and the Indianapolis
Local Public Improvement Bond Bank, sold $195 million in bonds on Feb. 2. The interest rate it committed to pay?
Just under 3.84 percent.

“We are actually ecstatic about this,” said Dan Sellers, chief financial officer
of the hospital corporation, an agency partially funded by local taxes. His best-case assumption had been an interest rate
of 4.3 percent.

The difference means Health & Hospital Corp. will pay about $26 million
less over the 30-year life of the bonds than if the bonds had sold at the anticipated 4.3-percent rate.

“It
just means we’ll be able to do more, because we’ll have more ability,” Sellers said.
“We’ll have more money for health care.”

The hospital corporation plans
to sell another $466 million in bonds on Feb. 22 and 23.

Wishard is the county-owned hospital
that acts as a safety net for poor and uninsured residents. With unemployment leaving more people without
insurance this year, Wishard’s facilities have been crammed with patients.

Hospital officials moved
forward with plans to build a $754 million Wishard facility after Marion County taxpayers agreed in a Nov. 3
referendum to back the hospital’s bonds. Its current campus at West 19th Street and Indiana Avenue consists of 17 buildings
that on average are 60 years old.

Hospital corporation officials promised they have more than adequate cash to
pay off the bonds without additional tax revenue. The hospital corporation has saved $150 million in advance, is trying
to raise $50 million in private donations, and built up surplus cash flow by expanding a profitable network of nursing homes
and aggressively cutting costs at Wishard.
 
The new hospital is scheduled to be finished in December 2013.

Sellers cautioned that the early success won’t necessarily be repeated. The second round will be lease-revenue
bonds, which are not quite as popular with investors as the general-obligation bonds sold in the first round.

Bond
sellers raise interest rates to entice investors to buy. But if investor demand is strong, they can offer a lower rate.
Sellers expects the bonds backed by lease revenue will need to offer interest rates 0.25 to 0.4 percentage points higher than
the rates on general-obligation bonds–whatever those rates happen to be on Feb. 22.

“We just don’t
know what the market’s going to be,” he said. “Usually, when it’s a lease-revenue debt, the market
sees a little more risk in that.”

Indeed, Fitch Ratings graded the second round of Wishard bonds a half-notch
below its AA+ grade for the first round. Two other ratings services, however, gave both rounds of Wishard bonds equally high
grades: AA+ from Standard & Poor’s and AA from Moody’s Investors Service.

Sellers credited the
local taxpayer backing for those high ratings. Also, nearly 80 percent of the Wishard bonds were sold under the Build America
program, which was part of President Obama’s stimulus package passed last year.

That program helped reduce
the hospital corporation’s interest costs by nearly 35 percent, or $72.6 million, during the first-round bond sale.
That means the hospital corporation will pay $147.2 million in interest over the 30-year life of the
bonds.