WASHINGTON — The Internal Revenue Service is auditing $120 million of revenue certificates issued by Georgia’s Cobb County Kennestone Hospital Authority in October 2005 and $103.22 million of power revenue bonds issued by Colorado’s Platte River Power Authority in January 2007.
The audits were disclosed in event notices the issuers filed with the Municipal Securities Rulemaking Board’s EMMA system this week.
The Cobb County agency said the IRS told it in a letter that it routinely examines muni securities issues to determine whether they are in compliance with federal tax-law requirements.
The proceeds of the revenue certificates, which were auction-rate securities, were loaned to WellStar Health System Inc. to help finance a multi-year capital improvement program at several hospitals, including Cobb Hospital, Douglas Hospital, Kennestone Hospital, Paulding Medical Center Inc. and Windy Hill Hospital.
The authority said it “anticipates that WellStar and its counsel will take responsibility for responding to the IRS’ initial information request and subsequent matters with respect to the examination” and that “WellStar is cooperating fully with the IRS at this time.”
UBS Financial Services Inc. was underwriter for $95 million of 2005A certificates and Morgan Keegan & Co. was underwriter for $25 million of 2005B certificates. The certificates were insured by Ambac. Bond counsel was Sutherland Asbill & Brennan LLP in Atlanta.
WellStar planned to enter into an interest rate swap with UBS, according to the bond documents.
Neither James Budzinski, WellStar’s executive vice president and chief financial officer who was designated as a contact for investors, or his assistant could be reached for comment.
The Platte River Power Authority said the IRS also said it routinely examines municipal debt.
“At this time, we have no reason to believe that your debt issuances fails to comply with any of the applicable federal tax requirements,” the IRS said in a Dec. 13 letter.
The proceeds from the $103.22 million of bonds were to be used to buy securities and place them in escrow to be used to advance refund some of the authority’s outstanding debt.
The lead underwriter on that transaction was Goldman, Sachs & Co.. Morgan Stanley and JPMorgan also were underwriters. Sherman & Howard LLC was bond counsel. The law firm is also representing the authority in the IRS matter.
James Lane, a lawyer at the firm, said he is aware the IRS has an initiative to audit refunding bond issues, but that he’s not sure if this transaction is part of that initiative. He said all of the refunding bonds are still outstanding.
