The Denver Health and Hospital Authority will use $29 million of health care recovery zone revenue bonds to build a 78,500-square-foot pavilion for adolescent psychology, outpatient operating rooms, a procedure center, and parking.

Proceeds of the bond sale will be combined with $10.6 million from JPMorgan Chase Bank in a partnership under the new market tax credit program, which was authorized by Congress in 2000 to help spur investment in low-income communities. The private investors receive a credit against federal income taxes for making qualified equity investments.

The bonds carry ratings of BBB-plus from Fitch Ratings and BBB from Standard & Poor’s, both with stable outlooks. The fixed-rate tax-exempt bonds will have a final maturity of Dec. 1, 2040.

As the safety net provider for Denver, the health authority operates Denver Health Medical Center. In 2009, capacity issues forced the hospital to send emergency patients to other facilities. Renovation of the emergency room is expected to ease the capacity problem.

DHHA is the largest recipient of Medicaid in Colorado and serves a market of about 500,000 people. Last year’s admissions increased 6.6% over 2008.

“While financial trends continue to show improvement from prior years, DHHA is reliant on a network of governmental subsidies to provide profitability for the system,” Fitch analysts noted. “Significant reductions in governmental reimbursement could lead to negative rating action if management fails to respond appropriately.”

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