The Internal Revenue Service is auditing bonds issued in 2002 and 2003 by the Illinois Health Facility Authority, now part of the Illinois Finance Authority, and North Kansas City, Mo., to finance hospital projects.
The audits, which do not appear to have been initiated because of any problems, were disclosed by the issuers in material event notices they submitted to the nationally recognized municipal securities information repositories.
The IRS is examining $50 million of revenue bonds sold by the Illinois Health Facilities Authority in 2002, and $82.7 million - $42 million of fixed-rate revenue bonds and $40 million of auction-rate securities - sold by North Kansas City in two separate series in 2003.
In its notice, the city said it plans to close on a deal to refund the auction-rate debt around July 2, but said the bonds had previously been called for redemption on July 9, subject to the trustees receiving sufficient money to pay off the bonds through the scheduled redemption date. The issuer said that nothing in the disclosure notice obligates it to complete the planned refunding.
While both notices stated the IRS said it had no reason to assume there were any problems with the debt, the Illinois examination marks the second time the IRS has initiated an audit of that agency's bonds in the last few months. In late May, the issuer disclosed that $40 million of its revenue bonds issued in 2002 were under an apparently routine IRS examination.
In the Illinois transaction most recently under audit, Jones, Day, Reavis & Pogue, now Jones Day, was bond counsel, and Sidley Austin Brown & Wood, now Sidley Austin LLP, was the authority's general counsel. The bonds were underwritten by Banc One Capital Markets Inc., which was acquired by JPMorgan Chase & Co. in 2004. Gardner, Carton & Douglas, which has since merged with Drinker Biddle & Reath LLP, was underwriter's counsel.
In the North Kansas City deal, Gilmore & Bell, PC was bond counsel, and Oppenheimer & Co. was financial adviser. U.S. Bancorp Piper Jaffray, now Piper Jaffray & Co., was underwriter on both series of bonds, while Edward D. Jones & Co. also underwrote a portion of the auction-rate debt.
Officials from the two issuers could not be reached for comment.
