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El Paso Readies Hospital Deal

DALLAS - El Paso community leaders have dreamed of building a children's hospital for three decades as a shortage of local pediatricians forced physicians to send young patients to specialists in other cities.

Next week, the El Paso County Hospital District will begin financing that dream by issuing $120 million of general obligation bonds for the children's hospital approved by voters last November. The district also plans to issue $35 million of refunding bonds.

The issue comes on the heels of a credit-rating upgrade from Standard & Poor's and Fitch Ratings. Both raised the district from A-plus to AA-minus. The district does not carry a rating from Moody's Investors Service.

The deal also comes amid an ongoing federal investigation of bribery and fraud that has roiled every governmental body in El Paso County, including the county commissioners, the hospital district, the city of El Paso and surrounding school districts. The investigation has cast a shadow over troubled underwriter Bear, Stearns & Co., whose two executives working in El Paso County last year pleaded guilty to charges of bribing local officials in return for business.

Bear Stearns led the hospital's last $120 million bond transaction with Swiss-based UBS.

Christopher Pak, former vice president in Bear Stearns' Dallas office, pleaded guilty to a bribery scheme involving an unidentified county commissioner. His associate, Robert G. "Bobby" Ruiz, former managing director, pleaded guilty to bribery and conspiracy charges involving local government officials. Bear Stearns has been involved in nearly $2 billion of bond deals in the county over the past eight years.

Hector Zavaleta, managing director for the hospital district's former financial adviser First Southwest Co. has said through his attorney that he is cooperating in the investigation. Zavaleta resigned from First Southwest last year. Both First Southwest and Bear Stearns have said that the companies themselves are not under investigation and that they hold their employees to high standards of professional conduct.

Former County Commissioner Betti Flores also pleaded guilty to accepting bribes for her votes on hospital bond issues. However, decisions on hiring of financial advisers and underwriters are made by the hospital board, rather than the county commissioners.

For the hospital bond issue scheduled April 16, the district is using Kaufman Hall & Associates Inc. of St. Louis as financial adviser, with an underwriting team led by UBS, with Banc of America Securities LLC, Morgan Keegan & Co. and JPMorgan as co-managers.

"We wanted to have more than one underwriter, and we wanted companies with a local presence," said Phil Rivera, the hospital district's chief financial officer. With strong local interest in the bonds, the district has set a retail order period for April 15, Rivera said.

While the federal investigation will be disclosed on the district's official statement, the scandal is not expected to have any major impact on the upcoming deal, Rivera said.

Local officials "are going to go through the steps to clean up this kind of stuff," Rivera said. "I think there will be a new way of doing business going forward."

Neither ratings agency mentioned the investigation in issuing the upgrades, citing instead the strong financial performance of the county's Thomason Hospital under the stewardship of Rivera and the man who hired him three years ago, chief executive James N. Valenti.

After suffering years of financial distress and a reputation as the "hospital of last resort," Thomason has seen its finances turn positive under Valenti's leadership. County Commissioners Veronica Escobar and Dan Haggerty credit Valenti for bringing sufficient credibility to the hospital to win voter confidence for building the children's hospital. .

Another vote of confidence came last month when Thomason Hospital was named one of the nation's Top 100 hospitals by Thomson Healthcare. Thomason was one of only seven Texas hospitals to make the list.

"Jim Valenti has made it our goal to go from being the 'hospital of last resort' to the 'hospital of first choice,'" Rivera said.

The children's hospital will gain some medical support with the arrival of the Texas Tech University Health Sciences Center, a medical school that will work with the county's public hospitals. Two of three buildings for the new campus have been completed, and the first class of students is scheduled to be seated in August, 2009.

Creating an infrastructure for treatment of children is necessary to attract pediatricians, who may balk at working out of several different hospitals, Rivera said. A city the size of El Paso typically has one pediatrician for every 1,500 people, while El Paso has one per 3,800, he said.

"So, a lot of kids are sent out of El Paso for treatment, which, for a city this size, is a crime," Rivera said.

With an estimated population of 609,415, El Paso is the sixth largest city in Texas, growing at the rate of 11% since 2000. With its sister city across the Rio Grande, Ciudad Juarez, the metro area has more than 2.5 million people.

Through the Base Realignment and Closure process, Fort Bliss on the city's boundary is expected to add 27,000 troops and an equal number of family members.

To handle the rapid growth, one of the largest land owners in the county, the El Paso Public Services Board has developed a 5,800 acre mixed-use project in northeast El Paso in which 1,600 units of affordable housing will be developed in the first phase. Other higher value master planned developments are underway or in the planning stages.

The developments have helped boost the county's tax base to $31 billion, increasing by over $3 billion in each of the last three fiscal years, according to Fitch analysts.

The El Paso County Hospital District covers 1,058 square miles, with the 327-bed Thomason Hospital as the only acute care facility owned by the district with the legal responsibility to provide medical and hospital care to all of El Paso County's residents regardless of their ability to pay.

The management team's record of putting the hospital on a sound financial footing, despite the high rates of poverty in the area was cited as the key to the ratings upgrades.

"A new executive team installed in 2005 moved quickly to remedy the district's past financial structural imbalance by adjusting staffing levels, controlling supply costs, and improving fee collection efforts," Fitch analysts wrote. "Medium term goals include improving the district's payor mix by improving facilities and expanding service lines which will be aided by the new medical school. Fitch believes the hospital will benefit from a potential windfall in new patients from the future influx of 27,000 additional troops at nearby Fort Bliss."

 

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