Hope for hospital strong after signing loan agreement with Bainbridge, Decatur County

Published 5:49 pm Friday, January 13, 2017

The Bainbridge City Council, Decatur County Commission and the Hospital Authority held a joint called meeting in front of a standing room only crowd Thursday night at the Kirbo Center. The three entities each unanimously approved a Memorandum of Understanding that is expected to return Memorial Hospital and Manor to a stable financial state and secure its future.

“Our hospital is worth the commitment that we are making to it by voting in favor of the M.O.U.,” Mayor Edward Reynolds said in his opening statement. “Almost 500 jobs are at stake as long as our hospital is at risk.”

Under the approved MOU, the hospital’s current $9.5-million debt, which is held by local financial institutions, will be refinanced through a bond sale. This will enable the hospital to lower its current interest rate to a figure that is projected to be under 3-percent and restructure the debt service payments to three payments per year instead of monthly payments.

“Just by reducing the interest rate we are going to save about $150-170,000 a year just in what they were paying to service the debt,” City Manager Chris Hobby said. “It frees up money, it gives them better terms and it provides them some relief.”

In all, $11.5-million in bonds will be sold, which will pay off the existing debt and also give the hospital $2-million in cash flow that can be used for capital improvements.

“It is a 50-year old facility,” Hobby said. “It looks like it. It operates like it with its infrastructure.”

The bonds will be for a 15-year term and the debt service will be paid by the hospital using the reimbursements it receives through the indigent care tax already levied by Decatur County. As part of the MOU, the county has agreed to extend the indigent care tax for four additional years to Dec. 31,2029. This will cover the first 12 years of the debt service payments for the bonds.

“The investors were willing to accept the indigent care tax that was already in place, except for the fact that it might not last the whole 15-years,” hospital authority chairwoman Glennie Bench said. “The country stepped up and realized that dilemma and agreed to extend the indigent tax for four of those years.”

The final three years will be covered from a reserve account that the hospital will fund over the next 12 years. The expectation is that taxpayers of Decatur County will see no additional cost related to the operation of the hospital.   

“Because of the more manageable debt service levels, the hospital can generate a full three-years worth of reserves in advance so that the final three-years of the bond payment will be paid out of that reserve,” Bench added. “That reserve will be held by the city not the hospital, so the hospital cannot touch it for any reason.”

The MOU also plans for what they have deemed the “unlikely possibility” of the hospital closing. In that scenario, the indigent care tax would cease to exist and the city would assume control of all hospital assets and the debt liability. The property would then be sold to cover the outstanding debt with the city covering any remaining balance.

“We can’t allow that to happen,” Hobby said of the hospital closing. “I think the actual risk is about zero. We are freeing up enough money. The indigent tax that is already being collected is more than enough to fund the service to debt.”

The expectation is that the bonds will go on sale in early March. Once they are sold and sale period is closed, the hospital’s current debt will cease to exist.

“The bonds will close pretty quickly after they are sold,” Trey Monroe of Stifle, Nicholaus & Company, which is underwriting the bonds, said. “Usually within 30 days. At that point when the bonds close, the old debt will be paid so that will not exist anymore. Then they will be subject to the terms of the bonds.”

Before the bonds close, the city and hospital will have to approve the terms of the bond including the interest rate, which will depend on the bond market at the time they go up for sale.

“The interest will be set and documents will be presented to the hospital authority and the city that will disclose the interest rates and the debt services and they will have an opportunity at that point to accept it or reject it,” Monroe said.

Saving the hospital through the bond was of vital interest to both the city and the county, as losing the presence of a healthcare facility would irreparably harm the economic future of Decatur County and the City of Bainbridge.

“If we don’t have a hospital, economic development probably is not going to occur,” County Administrator Alan Thomas said. “It is very important that we protect the hospital and we have quality health care in the community.”

Hobby added, “If this facility closed, our economic development efforts would end.”

In order to remain viable, the hospital will also have to continue to implement the sweeping changes that have been made to the billing and collection departments in recent months. According to Bench, in just the last few months they have already seen an 84-percent improvement in net losses from last year and a 20-percent increase in payments from insurance companies because of these changes. 

In his closing statement at Thursday night’s meeting, Pete Stephens, who is the chairman of the county commission, echoed the sentiment that this is just the first step in saving the hospital.

“The hospital is facing some serious challenges,” he said. “It will require innovative thoughts and a strong ,strong leadership. This is a step in that direction and an opportunity for us all to provide our support and understanding during this transition to a more viable and stable medical facility.”

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