Facility Type: Clinic
Location: San Antonio, Texas
Project Objective: New construction
Financing Amount: $16.7 million
Source of Funding: Tax-exempt bonds enhanced by a letter of credit. A swap fixes the interest rate.

Background and Challenges
El Centro del Barrio, also called CentroMed, runs 19 clinics serving under- and uninsured San Antonio area residents. As Texas’ largest clinic network, it has provided preventive care, behavioral health counseling, and nutritional services since 1972. Demand for CentroMed’s services continues to grow; its largest clinic saw a 31 percent increase in visits over two years. The organization envisioned a new clinic and office space to better meet community needs.

Financial Solution
As such a critical resource, CentroMed receives consistent support from state, local and private organizations. A series of atypical events in 2006 caused a drop in operating cash flow for the year. Lancaster Pollard helped investors understand the reasons behind these anomalies using the clinic’s more representative past and 2007 year-to-date financials, and also explained CentroMed’s potential for Community Reinvestment Act qualification. The firm then orchestrated a flexible financing with variable-rate demand bonds backed by a bank letter of credit.

Lancaster Pollard negotiated a reduced letter of credit fee with the bank after the construction period was completed. Further, the firm structured a split series of bonds to work around a lower-than-anticipated appraisal valuation. This allowed CentroMed to fund the entire project at one time and utilize an extensive capital campaign to help pay for some of the bond issuance costs. An interest rate swap will mitigate volatility in the variable interest rate.

Lancaster Pollard also established a capitalized interest fund to pay bondholder interest payments during construction and ensure CentroMed can meet these obligations while maintaining balance sheet liquidity.

Outcome
CentroMed has broken ground on its new 64,000-square-foot Community Health and Wellness Center, and it has reimbursed itself $402,000 for related project costs. The new clinic will provide health services and house administrative staff, saving $72,000 annually in office space lease costs.