Mercy: Commission Approve $40 Million Bond Sale
Tuesday night the Manhattan City Commission approved Industrial Revenue
Bonds for Mercy Hospital. The City will be the issuer of the
Bond by they are not held responsible if the bonds are not paid. Here is the background information the Commission received on the subject:
Municipalities have the statutory authority to issue Industrial Revenue
Bonds (IRBís) for the purpose of constructing and/or equipping
facilities which will enhance economic development. Furthermore, interest earned from Industrial Revenue Bonds issued for certain purposes
is exempt from Federal and State income taxes.
The City is the issuer of the Industrial Revenue Bonds. The City owns
the real or personal property financed from bond proceeds, and leases
the property to the applicant (tenant). The tenant makes lease payments to a Trustee Bank equal to the annual principal and interest
payments on the bonds. When the bonds have been paid in full, the City deeds the real and/or personal property to the tenant. Although the
City is the issuer of the bonds, the City incurs no legal obligation to make payments on the bonds should the tenant become unable to make
the payments. Should there be a default, the real or personal property reverts to the City and the Trustee Bank would attempt to sell or lease
the property to reimburse the bondholders. According to Bond Counsel, a default on a single Industrial Revenue Bond issue would not
jeopardize the bond rating of a municipality. There has only been one such default in Manhattan in the late 1980s or early 1990s that involved
industrial revenue bonds for ShowBiz Pizza, and that default did not adversely impact the Cityís Aa bond rating.
On December 1, 2000, the City received an application for the City to
issue up to $40,000,000 in Industrial Revenue Bonds on behalf of Mercy
Health Center of Manhattan, Inc. to fund the expansion of the trauma center at the College Facility to include five additional critical care beds,
as well as the construction of a new two-story nursing wing, including a new entrance and lobby area, new 15-bed womenís center,
expansion of the surgical suite for in-patient surgery, expanded food service system, new community and professional education center,
hydro-therapy center, and expanded radiology, cardio pulmonary and laboratory services. The applicant states in the application that "the
expansion and improvements will greatly improve the equality of health care available to the residents of Manhattan and Riley County and
will better situate the Applicant to meet the continuing complex health needs of its patients and the community."
Mercy Health Center proposes to utilize up to $40 million (applicant
anticipates approximately $38 million) in industrial revenue bond
proceeds along with $5.5 million in cash, $6 million from a capital campaign and $3 million in interest from bond proceeds during construction
to finance the total project cost of $54.5 million. The funding would be used for construction (approximately $42 million), machinery and
equipment (approximately $2 million), cost of bond issuance (approximately $800,000), interest ($6.65 million) and a debt reserve fund
(approximately $3 million). Mercy Health Center has indicated that they would pledge the College Avenue facility and the unrestricted
receivables of the hospital for the repayment of the bonds.
Mercy Health Center has acquired the services of its own bond counsel,
J.T. Klaus of Triplett, Woolf & Garretson, to manage the IRB issue.
However, based on the sizable nature of this IRB issue, the City requested the review and advice of its financial advisor, Springsted, Inc. and
of City Bond Counsel, Gilmore and Bell, regarding the Cityís issuance of the bonds. Mercy Health Center will be required to pay the fees
associated with the review by the Cityís consultants.
Attached are memos from Springsted, Inc. and Gilmore and Bell indicating
that they have reviewed the Mercy IRB application and have not
found any concerns for the City with issuing the bonds. Joe Norton, City Bond Counsel from Gilmore and Bell, will be present at the City
Commission meeting to answer any questions that the Commission may have about the issue.
The first step in the process of issuing the Industrial Revenue Bonds
for Mercy Health Center is for the City Commission to conduct a public
hearing. The public hearing shall take place on December 19, 2000. On December 5, 2000, Triplett, Woolf & Garretson published a notice of
the public hearing in the Manhattan Mercury. Immediately following the public hearing, the City Commission will consider a Resolution of
Intent to issue the bonds. If this action is approved, it is proposed that the first reading of an ordinance authorizing the issuance of the
bonds will be placed on the January 4, 2001 meeting agenda followed by second reading on January 16, 2001. Bond closing is projected to
occur on or about January 25, 2001.