Hospital Type: Critical access 
Location: Fredonia, Kan.
Project Objective: Expansion
Financing Amount: $10.7 million
Source of Funding: Unenhanced, fixed-rate, tax-exempt bonds

Background and Challenges
Residents of Fredonia, Kansas, have had access to health care at Fredonia Regional Hospital’s current location for over 55 years. With cost-based reimbursement via the critical access program, the hospital’s board of directors identified an opportunity for a significant expansion to meet changing physician and patient expectations. As senior management’s time and resources were limited, the hospital needed a financial partner it could rely on throughout the planning, development and financing process.

The hospital is city-owned; as a result financing options were limited to fixed-interest tax-exempt bonds, with no access to interest rate derivatives. In addition, Fredonia Regional Hospital’s project reached the funding stage as the 2007 sub-prime mortgage meltdown began to negatively impact tax-exempt bond issuance for critical access hospitals.

Financial Solution
Lancaster Pollard performed considerable due diligence to help Fredonia through all aspects of its project. The firm applied its knowledge of community hospitals to develop a project scope within the hospital’s prudent debt capacity, and then explain Fredonia Regional Hospital’s key credit characteristics to bond investors. Despite volatile tax-exempt bond market conditions, Lancaster Pollard committed to a firm purchase of the ¬hospital’s unenhanced fixed-interest bond issue and delivered a low interest rate by seizing an opportunity to issue bonds while other underwriters were pulling their bond issues.

Outcome
As a result of the bond issue, Fredonia Regional Hospital is adding more than 30,000 square feet. Additions include outpatient clinic offices, treatment and procedure rooms, all-private inpatient rooms and new radiology and emergency departments. The expansion will help the hospital maintain its strong market share as neighboring hospitals complete their own renovations. The financing’s favorable terms ensure the flexibility to undertake future renovations as the hospital achieves its operating targets.