CHICAGO -- Eskanazi Health, Indianapolis' public hospital, called off a planned merger with another Indiana system, saying its merger partner wasn't eligible to take over Build America Bonds that Eskanazi issued in 2010.

Eskenazi, which is Indianapolis and Marion County's only safety-net hospital, first announced plans to merge with Community Health Network in early 2013.

But the deal was recently canceled when it became clear that Community Health couldn't take over the BABs because, though it is non-profit, it is a private institution and therefore ineligible for the federal program.

That presented the most "significant challenge" to the merger, officials said.

Eskenazi issued the BABs and other bonds starting in 2010 to finance construction of the $742 million facility, which opened late last year.

A report in the Indianapolis Business Journal said officials considered refinancing the BABs to clear the way for the merger, but that it would have been too expensive.

"After careful examination, the resolution of tax and bond issues would create such a cumbersome and complex structure it outweighs the advantages of integration," Eskenazi said in a statement.

The two systems said they will continue to pursue limited partnerships that are less than a full merger.

"What we initially conceived we now know is legally not possible," Matthew Gutwein, CEO of the Health and Hospital Corporation of Marion County, which runs Eskenazi, told the Journal. "We regret that."

Eskenazi, formerly known as Wishard, is Marion County's main acute-care safety net hospital. Voters in 2009 approved the issuance of $703 million of bonds to finance a new facility to replace the existing facility.

The initial $200 million borrowing in 2010 included $165 million of direct-payment federally taxable BABs rated AA-plus.

A piece of the BABs with a 2030 maturity and 5.85% coupon was yielding 4.5% in trading last week, according to the Municipal Securities Rulemaking Board web site. That's down from 5.3% yield last September. BABs with a 2040 maturity and 6% coupon yielded 4.8% in late May trading, according to EMMA.

A chunk of traditional tax-free bonds issued for the financing with a AA rating, a 2023 maturity and 5% coupon were yielding 2.1% in May trading.

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