Property Type:
Critical Access Hospital
Location:
Canton, IL
Objective:
Renovation/Expansion
Financing Amount:
$15.9 million
Source of Funding:
Variable-rate bonds enhanced with a bank letter of credit.
Other factors:
Reimbursement Resolution
Closing Date:
Dec. 21, 2006

Background & Challenges
Built in 1968, Graham Hospital is a financially solid organization whose aging facility needed increasing capital improvements. Because of its strong liquidity, Graham Hospital had historically funded projects with cash reserves. But this practice had begun to negatively affect the hospital’s Days Cash on Hand ratio, which could ultimately have put it at risk of diminished credit strength.

Analysis & Solution
While Graham Hospital had never solicited a standalone credit rating, Lancaster Pollard’s analysis of its key financial ratios placed its implied credit strength at BBB or higher. To strengthen the hospital’s overall credit profile, Lancaster Pollard advised the hospital to fund capital expenditures via tax-exempt debt, thereby not only preserving liquidity on its balance sheet, but allowing the hospital to grow its liquidity over the long term by accumulating cash flow from operations. The hospital's $15.9 million bond issue was marketed to bond insurers and letter of credit banks, and bids were received from several of the enhancement institutions. Ultimately, Lancaster Pollard combined an aggressive letter of credit enhancement with a 25-year, fixed-rate swap for an all-in cost of capital of 4.1 percent.

Outcome
Because Lancaster Pollard had advised that the hospital’s board pass a reimbursement resolution prior to the tax-exempt financing, half of the $15.9 million reimbursed the hospital for capital improvements already under way, thus replenishing the depleted cash reserves. Remaining funds will pay for an emergency room expansion and the conversion of older shared rooms to private rooms.