DALLAS - Woman's Hospital of Baton Rouge has halted construction on a hospital replacement project until it can sell up to $350 million of bonds to finance the effort.
Six contractors are now working on the site, but construction will come to a halt as soon as several six-story concrete support pillars are completed, said Stan Shelton, senior vice president at Woman's Hospital and project manager for the new facility.
"Once these are done, there will be no more active construction on the site," he said. "We had planned to sell $300 million or $310 million in a bond issue, but none of that has happened."
Shelton said construction could resume quickly whenever long-term financing is arranged.
The hospital board met over the weekend to hear presentations from management officials and its finance team on the status of the project and the inability to sell the bonds.
The finance team recommended that the project be halted temporarily, and the board agreed. The decision was announced Monday.
Work began on the new hospital, located five miles south of the existing facility, last June. Construction was to be completed by late 2010, with the new facility opening in early 2011.
Uncertainties in the debt market have resulted in an interest rate that is too high to be feasible, according to C. Stokes McConnell Jr., a partner at Long Law Firm LLP, the hospital's bond counsel. The financing plan called for selling bonds with an interest rate of 7% or less, he said.
"This is an A-rated debt, and we've seen double-A rated debt trading at 8% to 8.5%," McConnell said. "This has nothing to do with the hospital. It relates to all the current problems in the market and the credit crisis."
He said the hospital has been keeping an eye on the bond market since November in hopes of seeing the market stabilize, but it did not happen.
"We just think that we'll see some improvement in the market," he said. "If something happens, we can go to the market pretty quickly. The documentation is all prepared and we've been before the rating agencies."
McConnell said the hospital intends to issue slightly more than $300 million in a single tranche when the time is right.
The hospital's existing debt is rated A by Standard & Poor's and A1 by Moody's Investors Service.
The Standard & Poor's rating was lowered from A-plus in September 2008, and given a negative outlook due to the hospital's intention to issue the new bonds. Moody's said in November that the plan to issue additional debt for the replacement project could result in a multi-notch downgrade.
The State Bond Commission approved in November a request from the Woman's Hospital Foundation for $350 million of revenue bonds to be issued by the Louisiana Community Development Authority. In December, the foundation asked the commission for and received a $100 million allocation of Gulf Opportunity Zone bonds for the hospital project.
McConnell said the hospital intended to finance the entire project with revenue bonds, but opted to seek an allocation of GO Zone bonds because of their more flexible rules on how the proceeds can be allocated.
Woman's Hospital plans to use the GO Zone bonds to build a physician office building and a day surgery center for cancer treatment and outpatient services.
The new facility will be 26% larger than the existing complex. In addition to the hospital, it will include two medical office buildings, a central energy plant, and a support services building.
Teri G. Fontenot, president and chief executive officer of Woman's Hospital, said the construction halt should be short-lived.
"Health care facilities throughout the nation are making similar decisions, and are putting off capital expenditures and projects such as ours for the time being," she said. "This does not mean the project will not be completed, but rather that we need to wait until we can obtain financing that better fits our long-term plans."