New York State will pick up the debt-service tab for North General Hospital, which plans to file for bankruptcy, officials said Monday.
The Harlem nonprofit hospital has $117 million of outstanding refunding bonds issued by the Dormitory Authority of the State of New York in 2003. The debt is secured by pledged revenues from the hospital and has the additional security of a state service contract equal to principal, interest, and sinking fund payments as long as the bonds are outstanding.
“The state has obligated itself to pay debt service in the event that sources from the hospital itself or related sources weren’t sufficient to cover debt service,” said DASNY executive director Paul Williams Jr.
“Now that the hospital is winding down — besides any funds that might be generated from a potential sale or lease of the property, which would be applied to either defease the bonds or to support payment of debt service — the state will be responsible for paying debt service on the bonds,” he said.
Standard & Poor’s rates the bonds AA-minus with a stable outlook. The hospital’s bankruptcy and dissolution will not have an impact on the rating, said analyst David Hitchcock.
“The rating reflects the rating of the state and not the hospital,” he said. “We would expect them to continue to make payment.”
New York state service contract debt like North General’s is rated as appropriation debt, one notch lower than the state’s AA general obligation debt.
In a deal hashed out over the past year between state, New York City, and hospital officials, the 190-bed Harlem nonprofit will file for Chapter 11 protection, cease operations, and transfer property to other entities.
The New York City Health and Hospitals Corp. plans to open a long-term acute-care facility in the main building and construct a new skilled-nursing facility on a parking lot at the hospital to replace a facility at the Coler/Goldwater Specialty Hospital on Roosevelt Island.
The Institute for Family Health, a family practice health care provider, plans to open a center at the North General facility that would provide primary care services to an estimated 80,000 people annually and would be housed in the hospital’s annex building after renovations were made.
The city plans to sell approximately $250 million of bonds to finance HHC’s new nursing facility, Office of Management and Budget spokesman Raymond Orlando said.
HHC would reimburse the city for debt service costs.