The New York City Health and Hospitals Corp. said it will use all tax-exempt bonds in its $513.8 million deal pricing this week instead of including a portion of Build America Bonds.
The HHC said last week that it originally expected to sell some or all of the new-money bonds in the transaction as taxable BABs before that program expires or is modified, but instead decided that BABs were less appealing than tax-exempts after officials ran the numbers.
“We made a decision we wanted only callable [bonds], not mark-to-market, and once we decided, we priced callable BABs and it really wasn’t enough of an improvement to be worth it,” said Marlene Zurack, HHC’s senior vice president for finance.
“It wasn’t valuable enough to take any of the risks even though we know they’re minimal,” she said.
The risks the corporation considered were the possibility that the U.S. Treasury Department would offset the 35% interest subsidies in the future as it has done with a small number of issues or that the subsidy program could be eliminated someday.
Another concern was that the subsidy wouldn’t be included when calculating debt service to meet capital reserve requirements.
The corporation’s capital reserve fund has to be funded at maximum annual debt service.
The higher debt-service costs would require a larger capital reserve, even though the net costs after the subsidy would be reduced, Zurack said.
The bonds will be offered to retail investors Monday, followed by institutional pricing Tuesday.
The new-money portion of the deal is about $200 million. The remainder is refunding bonds.
HHC last sold new-money bonds in 2008 as part of a larger deal that included a refunding.
JPMorgan will lead manage the deal. Hawkins Delafield & Wood LLP is bond counsel and Public Financial Management Inc. is financial adviser.
HHC operates the largest public health care system in the U.S. Its facilities serve more than 1.3 million patients annually, of which more than 450,000 are uninsured.