CHICAGO — The new owners of the Detroit Medical Center kicked off the first phase of an $850 million capital program Tuesday afternoon, four days after closing the long-anticipated acquisition.
The capital program will mark the single largest investment in Detroit. City officials hailed the sale and the investment as key toward stabilizing the city, creating new jobs, and boosting a nascent medical industry to help replace a vanishing manufacturing base.
“We are going to be changing the face of health care in southeast Michigan,” Mike Duggan, president and chief executive officer of DMC, said at a press conference.
Tennessee-based Vanguard Health Systems Inc. acquired DMC last Friday — after nearly a year of delays — for $1.5 billion in a mix of cash and the assumption of debt.
DMC is Michigan’s largest charity-care provider. It operates eight facilities.
As part of the deal, Vanguard was required to take over and defease all of the system’s outstanding tax-exempt bonds within 90 days of the closing. Notices were recently issued that all outstanding bonds will be redeemed on Jan. 31, 2011. The debt was issued in 1993, 1995, and 1998 by the Michigan State Hospital Finance Authority, the predecessor to the Michigan Finance Authority.
DMC was a relatively rare debt issuer, and last sold bonds in 1998.
Vanguard paid $370 million in cash for the assets and assumed $490 million of outstanding tax-exempt bonds as well as DMC’s unfunded pension obligations and malpractice liabilities. Together, those obligations are reported to be $335 million.
Vanguard said it would invest a total of $800 million for projects at DMC’s Detroit facilities, where all but one of its facilities are located.
Detroit and Wayne and Oakland counties created tax-free renaissance zones surrounding DMC facilities so that Vanguard will be exempt from having to pay most city, county, and state taxes for at least 12 years.
The largest project in the first phase of the capital program includes a $43 million children’s hospital that is already under construction. Other projects include renovations at Huron Valley-Sinai Hospital outside the city and expansions at DMC’s Cardiovascular Institute and Sinai-Grace Hospital, both in Detroit.
As a private, for-profit company, Vanguard will not tap tax-exempt financing for its capital projects.
The Henry Ford health care system announced plans last April to spend up to $1 billion in a massive expansion plan that would include a $500 million investment in its flagship Detroit facility. Tax-exempt debt would likely finance some of the plan.