Temporarily contributing $750,000 for credit enhancement
Gunnison County is poised to lend its credit rating to Gunnison Valley Hospital, which is still looking for ways to restore its financial stability. A deal proposed between the county, GVH and Colorado Business Bank would allow the hospital to refinance a 1998 bond and free up about $140,000 per year, or more than $1.5 million over the remaining 11-year term of the loan.
County manager Matthew Birnie and new GVH CEO Rob Santilli met with the Board of County Commissioners on Tuesday, December 11 to walk them through the details of the arrangement. The hospital has not missed a payment on its 1998 loan, originally taken out to update and renovate parts of the hospital and senior care center, but it is considered out of compliance because it has not maintained financial metrics like available cash flow and its debt to cash ratio. Without the county’s participation, the hospital would be unable to refinance on its own.
“The county is serving as a backstop for the credit-worthiness of the hospital so they can access our strong credit rating,” Birnie explained. “The hospital on their own is not in a position to refinance their debt, and they’re paying some higher rates than can be obtained now.”
According to Birnie, County participation would allow the hospital to take advantage of an interest rate of 2.75 percent. In order to do that, however, the county would contribute $750,000 from its general fund reserves to what is called a debt service reserve fund, also called a credit enhancement fund.
GVH would contribute an additional $250,000, and if the hospital were unable to make payments, the bank would be authorized to take the payments from that fund. It essentially gives the bank an extra level of assurance.
“One of the things that was important to the bank was that the county put money in and the county be responsible if there’s a draw on these debt service reserve funds. The county is responsible, subject to annual appropriations, for replenishing that. The hospital said, ‘Why don’t we just re-service that?’ which would make everyone more comfortable, except for the bank,” Birnie explained.
So instead, to protect the county’s interests an agreement has been drafted whereby the hospital would pay back the county for any additional payments to the fund. Metrics have also been put in place so that when the hospital meets certain financial metrics—like 150 days of cash on hand—county funds can be released. If those metrics are not met, a schedule has been created to release the county funds by 2015.
“By 2015, the money comes back [to the county] either way. You’re not keeping that money in the fund for the 10-year length of the loan,” Santilli explained.
Birnie pointed out that the hospital is well poised to achieve some of those metrics as early as this coming spring, at which point the fund requirement would be reduced by $250,000. Santilli confirmed that the hospital already has 125 days of cash on hand. He added that the need to dip into the credit enhancement fund was unlikely, and pointed out that the agreement includes quarterly financial reports to the commissioners.
“We’d be having conversations along the lines of how well we’re doing. If there’s anything going in a direction that’s not as productive, we’ll be looking at plans ourselves to demonstrate that we’re moving in positive way,” Santilli said.
“Ultimately, what this does is offer a bridge to the hospital to work on their fiscal performance… The risk for the county is real but mitigated with the timelines and hospital obligations,” Birnie said.
He later added, “We need a hospital and we need one that performs well. The hospital has done a lot of things to turn the ship around, and all indications are that they’re heading in the right direction.”
The commissioners were supportive of the proposal. “It’s a county hospital in the end,” Commissioner Phil Chamberland said.
“It could be a win-win for all of us, and I want to move forward,” said Commissioner Paula Swenson.
For his part, Santilli thanked the commissioners for their support and Birnie’s diligence in structuring the deal. “His responsiveness and thoughtfulness in being creative to protect the county and assist the hospital has been welcoming from my perspective,” he said.
On Thursday, December 13, Santilli will share the deal with the hospital’s financial committee, and on Friday it will go before the GVH board of trustees for approval. It will appear back before the county commissioners on December 18 for formal approval.