DALLAS - Texas' Bexar County Hospital District will sell the first tax-supported debt in 43 years with Monday's negotiated sale of $274.1 million of combination tax and revenue certificates of obligation.

The sale is the first tranche of a planned $751.2 million debt program that will finance a $900 million expansion and renovation effort at medical facilities operated by the district's University Health System.

"We haven't issued tax-supported debt since 1965," said district spokeswoman Leni Kirkman. "The financing philosophy has always been to stay within our means, and to finance expansions and renovations on a pay-as-you go basis. The board put aside our share of the [national tobacco settlement] for capital programs, and we opened several outpatient centers over the past few years as we've had the available funds.

"But our needs are now so large and so desperate that the leadership determined this was the best solution."

The district's primary service area is Bexar County, including San Antonio, but it provides medical and hospital care to a 22-county service area in central and south Texas with a population of more than two million.

The 30-year certificates, which are direct obligations supported by the district's countywide property tax rate, have been rated Aa2 by Moody's Investors Service, AA by Standard & Poor's, and AA-plus by Fitch Ratings.

The district currently levies a property tax rate of $2.37 per $1,000 of assessed valuation, but debt service requirements from the new debt will bring the total tax to $2.56 per $1,000 valuation in fiscal 2009.

Merrill Lynch & Co. is the lead manager of the underwriting team, which includes Coastal Securities Inc., JPMorgan, Southwestern Capital Markets Inc., Siebert Brandford Shank & Co., and Wachovia Bank NA.

The district's co-bond counsels are Fulbright & Jaworski LLP and the Law Offices of William T. Avila PC. Co-financial advisers are First Southwest Co. and Estrada Hinojosa & Co.

The hospital district has no outstanding debt. It has financed $130 million of capital projects over the past four years from available resources.

Bexar County commissioners opted in June to issue the debt as certificates of obligation rather than call an election for voter approval of general obligation bonds, Kirkman said.

"We were fully prepared to go the GO route but the commissioners felt the need was so great, and the money was so desperately needed, that they would take any heat," she said. "So far there's been a great deal of support for their tough decision."

The remaining tranches could be issued as GOs, Kirkman said.

The district plans to issue another $268.7 million of debt in 2009 and $208.4 million in 2011 to finance its $900 million expansion effort. It also will use $120 million from cash reserves for the projects.

Work on the district's master facility plan began in 2005, although discussions over the need for additional facilities started some two years earlier.

"Our patient load is increasing, our facilities are old, and there are not enough of them," she said. "Most of our rooms are designed for two to four patients, and not suited for modern medicine. We're not taking care of all the patients we should, and we're not taking care of them as well as we should."

The hospital's emergency room, the only Level 1 trauma center in the region, was expanded to 44 beds in the mid-1980s to handle 35,000 patients a year. The number of beds remains the same but the number of patients has risen to 70,000 a year.

Proceeds from next week's sale will finance projects in the first phase of work at University Hospital, which includes a new trauma tower with an expanded emergency department, an increase in the number of patient beds from the current 498 to a total of 721, and modernization of the central utility plant. First-phase projects at University Hospital Center Downtown include a new clinical services building, renovations to the outpatient pharmacy, and a new parking garage.

The district's facilities are the main teaching facilities of The University of Texas Health Sciences Center at San Antonio.

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