New Jersey officials yesterday approved a $169 million bond deal for Solaris Health System that will benefit from the state's appropriation pledge as the transaction falls under New Jersey's Hospital Asset Transformation Program.

That program aims to reduce the number of unused hospital beds, with qualified hospitals gaining the state's appropriation pledge if one entity takes over the debt of another due to the closing of an acute-care facility, although the acquiring health care providers continue paying debt service costs.

Muhlenberg Regional Medical Center in central New Jersey ended its in-patient care operations on Aug. 13, with JFK Medical Center, 5.5 miles southeast of the MRMC campus, taking on that facility's acute-care business. The area will now have roughly 300 fewer vacant hospital beds due to the closing.

The New Jersey Health Care Facilities Financing Authority will issue up to $169 million of bonds on behalf of Solaris, the parent company of JFK Medical Center and Muhlenberg Regional. Goldman, Sachs & Co. will price the bonds and McManimon & Scotland LLC is bond counsel.

NJHCFFA executive director Mark Hopkins said the exact pricing date depends upon market conditions.

"Solaris has some liquidity and I expect it will be able to keep paying the bond payments," Hopkins said. "We hope it will happen sooner rather than later because if the market does settle they'll probably get slightly better rates and have a slightly better financing structure. Better for them to handle, once it's done."

The transaction will refinance prior JFK Medical Center debt including Series 1993 for $12.3 million, Series 1995 for $21.2 million, Series 1998 for $43 million, Series 2003 for $16.2 million, and Series 2005 for $18 million. In addition, the refinancing will refund the MRMC's Series 2000 bonds for $18.5 million.

While Solaris has met debt service payments on the Series 2000 bonds, which are insured by Ambac Assurance Corp., the debt is in default due to covenant failures relating to debt-service coverage ratios and cash-on-hand requirements, according to Hopkins.

"MRMC was not in compliance with the financial covenants for the fourth quarter of 2007 and at Dec. 31, 2007. MRMC was not in compliance with all of the financial covenants required under the terms of the agreements with the [NJHCFFA] and Ambac for the first quarter of 2008," according to Muhlenberg's last independent auditor's report, ending Dec. 31, 2007.

The Muhlenberg campus generated operating losses of $2.9 million and $16.7 million in 2006 and 2007, respectively, according the auditor's report.

The $169 million sale includes $22 million of new-money bonds that will help support an expansion of the JFK Medical Center's emergency room and add 59 beds to that campus. Gov. Jon Corzine has 10 days to veto the financing plans, if he chooses.

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