The Blount County Board of Commissioners heard options for refinancing Blount Memorial Hospital’s debts ahead of a loan expiration during a special session Thursday.
Holly Benedict of Ponder & Co., a Brentwood-based financial services firm that assists hospitals and medical education centers, presented two options to pay off a $71,450,000 Series 2013A bank loan from J.P. Morgan Chase; it expires on Dec. 30.
“We’ve been meeting with the hospital since last year to find ways to proactively pay off the debt,” while minimizing the hospital’s cost burden and reducing its financial obligation to the county, Benedict said.
Benedict said an $841,900 Series 2014 loan from First Bank of Tennessee, which will be paid off on July 1, wasn’t part of the discussion.
Blount County Finance Director Randy Vineyard said a payment on the current 2013A loan is due in June, which would drop the total to $67 million.
Under Tennessee law, the hospital is considered a public entity and the county guarantees the loan under a swap agreement where the hospital makes payments to the county.
“A 2006 swap agreement resulted in a positive cash flow of $362,000 a year but in today’s market, the cash flow is flat or negative,” Benedict said.
Benedict said several banks were asked for proposals last year including Bank of America and T.D. Bank.
“The national banks actively passed on it because they don’t see themselves having a presence here,” Benedict said. “We had two compelling offers. Pinnacle Bank and First Bank of Tennessee both offered loans with interest rates below 3%. We believe that we could get a deal with just one bank.”
Both banks also have loan capacities of $10 million to $15 million for new debt, Benedict added.
The current loan was guaranteed by the county for three years on a 100% variable rate, currently 2.1%, Benedict said.
Both proposals would be repaid over 10 years and would be secured solely by hospital revenues.
The first option would refinance the loan at $77.4 million, including $10 million in new money, at a variable rate of 2.7% and a fixed rate of 2.75% using a mixed debt model.
The county would remain as obligor under a swap agreement.
Benedict said the second option would terminate the county’s obligation and refinance at $86.4 million and a 2.75% fixed rate, including $19 million total in new money.
The debt would be 100% fixed, Benedict said.
“If the county terminates the swap, a payment of $9 million would be due to Deutsche Bank,” Benedict said.
Interest expenses in 2020 under the current deal were projected at $1.4 million.
The first plan would increase that to $2.1 million and the second to $2.4 million.
Benedict itemized the current debt structure and swap payments in 2020 as $6.9 million in payments for a total debt of $86.8 million.
The first plan would increase the payments to $8.5 million in 2020 and $101.4 million overall.
The 2020 payments under the second plan would reach $8.3 million and $102.8 million in overall debts.
Benedict noted that the hospital board reviewed the options at its April board meeting and the board voted to recommend option two with a 100% fixed rate debt secured by hospital revenues.
“The next step will be to go to the state, then come back with a final resolution in a couple of months,” Vineyard said.
Benedict and Vineyard both noted a sense of urgency since a recommendation needs to be in place by August and a bank selected by September because the finalization could take up to three months, bringing it close to the current loan’s expiration.