Alabama Health Agency Sets $75M to Refinance, Pay Swap Fee

BRADENTON, Fla. — The Cullman County, Ala., Health Care Authority tomorrow plans to issue $75 million of fixed-rate revenue refunding bonds and pay a swap termination fee to restructure its debt portfolio.

The debt is being sold on behalf of the 115-bed Cullman Regional Medical Center.

CRMC is an acute-care hospital and the dominant health care provider in Cullman County, which is about 50 miles north of Birmingham.

The Series 2009A bonds are expected to be structured with serial and term bonds, a final maturity in 2036, and possibly a 10-year call provision, which will be determined at pricing.

Proceeds will refund all of the hospital’s long-term debt of approximately $19.05 million of outstanding fixed-rate Series 1993A bonds and $49.9 million of Series 2007A variable-rate bonds.

Bond proceeds also will be used to help pay a swap termination fee with the hospital’s counterparty, Merrill Lynch Capital Services Inc. The current estimated termination fee was not available at press time, but rating agency reports said it could run as high as $10 million.

“There is some present-value savings in connection with part of the refinancing but, in addition, the restructured debt will remove the downgrade risk in connection with the interest rate swap and the refinancing risk with respect to the 2007A bonds, which are subject to mandatory tender in 2017,” said Kathleen Collier with Presley Burton & Collier LLC, the bond counsel for CRMC.

The 2009A bonds have been rated BBB-minus by Fitch Ratings and Baa3 by Moody’s Investors Service. The deal was not rated by Standard & Poor’s.

Fitch and Moody’s assigned negative outlooks to CRMC’s debt largely ­because of the hospital’s variable operating performance, weak capitalization and debt ratios, and high degree of leveraging.

Fitch said its rating is supported by the hospital’s dominant market position as the only provider in Cullman County as well as operational improvement in fiscal 2009 that has continued into ­fiscal 2010.

“Also supporting the rating is CRMC’s solid cash position,” said a report by Fitch analyst Carolyn Tain, who noted that the hospital system generated 109 days of cash on hand at the end of fiscal 2009, which increased to 116 days of cash for the first quarter of 2010.

Moody’s said its rating could go down if CRMC assumes additional debt or is unable to sustain current operation performance.

“We note positively that by refinancing all its debt, CRMC removes the structural risk of its current debt structure,” said a report by Moody’s analyst Daniel Steingart.

Merrill Lynch & Co. and Frazier Lanier Co. are the underwriters on tomorrow’s transaction. Balch & Bingham LLC is underwriters’ counsel.

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Healthcare industry Alabama
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