ALBANY — The Hospital Authority of Albany-Dougherty County followed the Phoebe Putney Memorial Hospital Board of Directors on Thursday morning by voting to unanimously approve a bond refinancing proposal with SunTrust.
Bank of America and SunTrust have formally engaged in a margin rate factor, or MRF, adjustment resulting in an impact on interest owed by Phoebe — specifically a total additional annual expense for Phoebe of $470,000 from its 2008A and 2010A-1 bonds, a presentation pulled together by Hammond Hanlon Camp LLC and presented by Phoebe Putney Health System Chief Financial Officer Brian Church said.
“This gave us pause,” Church said to the Hospital Authority. “We wanted to see if there was a way to reissue this debt, refinance it to (keep the rates down).”
The MRF is defined as “a provision included in loan documents that allows the lender to adjust the interest rate upward to recoup the tax-exempt benefit lost should the corporate tax rate decrease.”
After testing the current variable rate direct purchase bond market, Phoebe and Hammond Hanlon Camp determined that refinancing the bonds was the best option to soften the MRF impact. While Phoebe was considering its options, proposals came back from nine banks, the one from SunTrust stood out as the most competitive.
Regions Bank had not yet engaged in the margin rate factor as of Sept. 12 for the 2008B and 2010A-2 bonds, but has the right to apply it at any point. The MRF adjustment could increase Phoebe’s annual interest expense by as much as $800,000. The pre-MRF interest rate was 2.13 percent, while the adjusted rate — assuming it was applied to each of Phoebe’s direct purchase bonds with no refinancing opportunities — is 2.59 percent.
The 2008A, 2008B, 2010A-1 and 2010A-2 variable rate direct purchase bond documents include the MRF provision which has been activated on about $100 million of outstanding par from the 2008A and 2010A-1 bonds.
While Regions has not activated the MRF on the 2008B and 2010A-2 bonds, a re-issuance will be required due to the recently reduced tax rate. Not exercising the provision could trigger a re-issuance of those bonds, requiring Phoebe to pay the current interest rates — which includes the lower tax rate.
By pursuing a refinancing, Phoebe stood to save a cumulative future value total of about $4.5 million over the next seven to 10 years. Church said that under the proposed structure, Phoebe would reduce the number of banks on direct purchase facilities from three to one while the number of outstanding bond issues would be consolidated from four to two.
“To me, this passes the sniff test,” Church told the Hospital Authority.
Under SunTrust’s proposal, debt to capitalization and days cash on hand covenant requirements are eliminated, affording Phoebe with a greater degree of financial flexibility in the future.
The hospital’s board approved the measure Wednesday. Joel Wernick, the health system’s president and CEO, abstained from that vote on the proposal while the remaining board members approved the resolution unanimously.