Twin Lakes Regional Medical Center is currently looking to refinance one of its debt bonds to possibly save up to $1.8 million in interest costs.
During a special called meeting on Friday, April 25, the Grayson County Hospital District Board discussed the potential refinancing options.
According to TLRMC Chief Financial Officer Scott Arndell, the 20-year, $12.5 million, Build America Bonds (BABs) were issued in 2009 for the recent expansion on the front of the hospital. Currently, 15-and-a-half years and an $11.5 million balance remain on these bonds.
During the 2009 economic recession, BAB bonds were issued to help stimulate the economy. Through them, the government would agree to pay 35 percent of the interest on the bonds, Arndell said.
Since that time, sequestration has led the government to renege (stop paying) three percent of the promised 35 percent and, thus, pay slightly more than 32 percent, according to Arndell.
In addition, Bond Legal Counsel Charlie Musson, of the Rubin and Hays law firm, who attended the board meeting, said he anticipates that the government may reduce its payments even further to as low as 28 percent in the near future.
The reneged payments and currently falling interest rates have led hospital officials to look into refinancing the bond to save a substantial sum of money, Arndell said.
Greg Phillips, of Hilliard Lyons, serves as the financial consultant for TLRMC and also attended the board meeting to discuss the refinancing options.
Phillips said that, depending on which refinancing option is selected, the hospital could save between $300,000 and $1.8 million over the course of the bond’s remaining 15-and-a-half years.
The four refinancing options, in order from the highest to lowest interest rates as determined by the current market, are as follows:
1. A revenue bond.
2. A General Obligation (GO) bond without a financial rating.
3. A General Obligation bond with a financial rating.
4. A General Obligation bond with a financial rating and bond insurance.
Currently, the fourth option would likely result in the lowest interest rate because of obligatory payments, certified financial rating, and bond insurance that would serve as reassurance to the bank that wins the bid that TLRMC can and will repay its loan, Arndell said.
However, depending on the bank proposal, a GO bond and a financial rating may not be necessary. This would be preferable because of the fees that would accompany both of these services, Arndell said.
Phillips said he estimated the rating fee alone would cost about $18,000.
Also, because interest rates fluctuate, the savings from the aforementioned options may change in the near future.
Phillips recommended that the board go ahead and approve the refinancing now, so if interest rates go up, the necessary approval will already be completed, and TLRMC can wait until they drop again to quickly complete the refinancing process.
The GC Hospital District Board passed a motion to allow the local banks to proceed with an inquiry into whether they will participate in the refinancing project and bid for the bond.
David Downs, of The Cecilian Bank, during the meeting, said representatives from The Cecilian Bank, Wilson and Muir Bank, Leitchfield Deposit Bank, Bank of Clarkson, and Bank of Caneyville will meet and likely have a proposal ready within one month.