Texas' Tomball Hospital Defeases or Calls $111M After Sale to For-Profit

DALLAS — The Tomball Hospital Authority near Houston has called or defeased its $111.4 million of tax-exempt bond debt after the sale of the Tomball Regional Medical Center to for-profit Community Health Systems.

The bonds include $85 million of Series 1999 and $47.3 million of Series 2005, according to the Hospital Authority’s filing with the Municipal Securities Rulemaking Board. Of those amounts, $72 million from the 1999 issue was callable, while $39.4 million was defeased through advance refunding.

In June, Moody’s Investors Service lowered $102.7 million of the bonds to Ba1 from Baa3. Standard & Poor’s and Fitch Ratings don’t rate the credit.

The purchase agreement includes commitments from CHS to make capital investments of at least $50 million over five years to upgrade clinical programs and improve facilities and medical technology.

Amid competition from major health-care operators, the Tomball Hospital Authority suffered a severe decline in operating cash flow in fiscal year 2011 after several years of a slow decline in revenue and  liquidity.

The agency hired a consulting firm to develop cost controls while planning $11.2 million in improvements.

With the downgrade in June, Moody’s maintained a negative outlook based on “concerns with an ability to stabilize volumes with increased competitive pressures and the current downturn in the economy,” analysts wrote. “The decline in liquidity lessens the ability to provide financial flexibility.”

Series 2005 bonds with a 2023 maturity traded as low as 72.5 cents on the dollar in July, according to the MSRB’s EMMA website. A $200,000 block traded at 115.2 cents Tuesday.

Lynn LeBouef, chief executive of Tomball Regional Medical Center, announced plans to sell the nonprofit hospital to the for-profit CHS in August.

“After thorough consideration, the sale of TRMC to Community Health Systems is the right next step for our organization to build on this progress and to ensure that we are able to meet the community’s health care needs for many years to come,” LeBouef said at the time.

The 150-acre TRMC campus includes the Robert F. Schaper Heart Center, the Texas Wound Center, the Texas Sports Medicine Center, and the Cancer Treatment Center. Building on its network of 18 affiliated hospitals throughout Texas, Community Health Systems will position TRMC as its flagship health system for the region serving the Tomball and northwest Houston markets, the company said.

CHS, based in Franklin, Tenn., is one of the largest publicly-traded hospital companies and a leading operator of general acute-care hospitals in non-urban and mid-size markets throughout the country. Through its subsidiaries, CHS owns, leases or operates 133 hospitals in 29 states with a combined 19,500 licensed beds.

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