After staying out of a multi-state refinancing in March, the New Jersey Health Care Facilities Financing Authority will refund early next year up to $150 million of Catholic Health East debt after the health care provider and the authority reached agreement on collateral postings for derivatives.
CHE now agrees to have a least 60 days' cash on hand after funds are taken out to post collateral on swaps. In return, the authority will limit materials that could become subject to the Open Public Records Act. HCFFA will waive its derivatives policy if a debt transaction is insured, as the credit enhancer's requirements would then take effect, according to minutes of the authority's Dec. 17 board meeting.
Bank of America Merrill Lynch will price the bonds in January or February. The transaction includes refinancing CHE's $74.1 million of Series 2007 variable-rate bonds that are based on the London Interbank Offered Rate into fixed-rate mode.
"CHE will be offering the investors an exchange rate in a range of 60 to 80 cents on the dollar for a fixed-rate bond at current interest rates in the range of 5.75% to 7%," the Dec. 17 board meeting minutes say.
The health care provider will terminate a swap agreement attached to the Series 2007 bonds that as of now will cost CHE approximately $16.8 million to end.
The transaction will also include a current refunding of CHE's Series 1998B bonds, issued through the Camden County Improvement Authority, and its Series 1998E bonds issued by the HCFFA. The anticipated net present-value savings on the refunding is roughly $1.83 million, depending upon market conditions.
In early March, conduit issuers in Pennsylvania, Georgia, and Massachusetts refinanced several CHE Libor-based bonds totaling $231.8 million into fixed-rate mode and terminated derivatives associated with the floating-rate debt. HCFFA did not move forward with the financing at that time, as it was in disagreement with CHE regarding collateral provisions. The authority did not want the health care provider to post collateral on derivatives if its days' cash on hand fell below a certain level, while CHE felt that swap provision was too restrictive.
"CHE has presented to the authority in the past that it views derivatives as an effective tool for debt structuring and, as such, it was hesitant to enter into a legal arrangement that sets limits for the use of those products going forward," HCFFA project manager Suzanne Walton wrote in an e-mail.
In New Jersey, CHE's health care system includes Our Lady of Lourdes Medical Center in Camden, Lourdes Medical Center in Burlington County, Saint Francis Medical Center in Trenton, and St. Michael's Medical Center in Newark.
In other news, St. Barnabas Health Care System, New Jersey's largest health care provider, will place $47 million from its recent sale of Union Hospital and Mega Care Inc. in an escrow account.
"This action allows the borrower to comply with federal tax laws by placing the proceeds of the property sale in escrow," HCFFA's Dec. 17 minutes say. "According to tax law, the nonprofit entity has two years to spend those funds on capital projects in order for it to be deemed a satisfactory qualified use of the funds."
St. Barnabas lost its investment-grade ratings in late October. It is in technical default and has entered into forbearance agreements with its bond insurers, all of whom have given consent to this escrow proposal, according to the minutes.
