The Federal Housing Administration, insurer of nearly $20 million of North Philadelphia Health System Series 1997A bonds, will not acquire the borrower’s property and outstanding debt, as Bank of New York Mellon, trustee of the 1997 bonds, agreed to withdraw its notice of mortgage assignment to the U.S. Department of Housing and Urban Development.
BNY Mellon filed the assignment notice in April after the health care provider missed a Feb. 1 mortgage payment. The mortgage payments pay debt service on the 1997 bonds. The trustee used debt-service reserve funds to meet a $45,320 payment to bondholders on July 1.
As NPHS has since filed several payments to cure its default events, BNY Mellon, retracted the assignment notice to HUD and it accepted the withdrawal, according to a material event notice dated Dec. 8 and posted to the Municipal Securities Rulemaking Board’s EMMA database yesterday.
The health care system in August had sued in the U.S. District Court for the Eastern District of Pennsylvania to prevent the trustee from filing the mortgage assignment.
The Philadelphia Hospitals and Higher Education Facilities Authority sold $25.54 million of 1997A bonds on behalf of NPHS. The system had $19.38 million outstanding on the bonds as of Oct. 15, according to Standard & Poor’s. The rating agency on Oct. 21 withdrew its rating on the 1997A bonds after downgrading the debt to CCC from AAA, citing its view that “the trustee nor the authority has acted in accordance with the [bond] documents,” according to a Standard & Poor’s report.
A Nov. 25 court order instructed the trustee to rescind the assignment notice to HUD once the health care provider met certain payment conditions. NPHS has paid all monthly mortgage installments through Nov. 1, and paid $229,168 to the debt service fund along with late charges and legal fees. Those payments allowed BNY Mellon— through its mortgage servicer — to free up $43,320 of earlier mortgage payments and replenish the debt service reserve account with those funds.
“As a result of the Nov. 25 order of the court, the receipt by the trustee of the payment from the hospital ... and the receipt by the trustee of the other items required by the indenture for the cure of the hospital’s default, the trustee has withdrawn the notice of assignment to HUD, and HUD consented to such withdrawal,” according to the event notice.
In addition to the above payments, the hospital system agreed to make quarterly payments of $50,000 beginning Jan. 15 and continuing until the debt service reserve fund equals at least $2 million, the court order states.
“NPHS agrees that its failure to make any such payment in full when due shall be deemed to be an event of default under the loan agreement,” it said.
The system plans on Jan. 1 to redeem $385,000 of Series 1997A bonds due Jan. 1, 2018, at par and with accrued interest, according to a Dec. 1 bond call filing. The maturity has $6.3 million outstanding and carries an interest rate of 5.3%.
NPHS consists of two acute-care hospitals, St. Joseph’s Hospital and Girard Medical Center, in north Philadelphia. St. Joseph is a 146-bed facility and Girard has 168 beds.
