ATLANTA - Hospital systems throughout the country are trying to unload their auction-rate securities, and next week the Cape Fear Valley Health Center in North Carolina will join them.
Starting on Tuesday, the hospital will begin refunding about $127 million of debt sold by the North Carolina Medical Care Commission.
Two new series of bonds will be sold. Series 2008B will be underwritten by Citi and BB&T Capital Markets. Hunton & Williams LLP and the Charleston Group are co-bond counsel. Ponder & Co. and First Southwest Co. are the financial advisers. Series 2008C will have the same co-bond counsel team and financial advisers, but Edward Jones is the underwriter.
Most of the proceeds will be used to refund the center's remaining 2006B bonds, which were issued as auction-rate securities in five subseries. The balance will fund various projects.
The health system entered into an interest-rate swap with Citibank NA with respect to the 2006B bonds in a notional amount of $202 million, and 30% of that will be terminated as part of this deal. The outstanding amount will be $137 million. That will cost the system a termination payment of about $4.7 million, according to the preliminary official statement for this deal.
The ratings for both series are A3 from Moody's Investors Service and A-minus from Standard & Poor's.
Chris Taylor, the secretary for the North Carolina Medical Care Commission, said that since the beginning of the year when the auction-rate market began to collapse, his agency has worked with several hospitals in the state on refinancings.
"We still have about $800 million of auction-rate debt outstanding, but we hope to solve that by the end of the year," Taylor said, noting that the goal is to refinance the debt.
Issuers include the Cleveland Regional Medical Center and Pitt Memorial, said Allen Robertson, an attorney with Robinson, Bradshaw & Hinson, who has worked with the medical care commission on several hospital transactions. He acknowledged that the auction-rate securities crisis has impacted North Carolina health care systems, but the systems have benefited from strong oversight.
North Carolina hospital credits are some of the highest rated in the country, Robertson said.
Other hospital systems in North Carolina have had ARS debt issued for them by the medical care commission, including Wayne Memorial Hospital, the University Health System of Eastern Carolina, Blue Ridge Healthcare System, and Moses Cone Health Care System.
