WASHINGTON — The Internal Revenue Service is auditing $61.3 million of auction-rate securities issued in 2005 by the Coastal Bend Health Facilities Development Corp. of Corpus Christi, Tex.
The corporation disclosed the IRS action in a material event notice filed late Monday with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system, saying the audit is a random check for compliance with the federal tax requirements.
The bonds are part of $796.58 million of auction-rate securities and variable-rate debt that were issued by the corporation, the Harris County Health Facilities Development Corp. and the Louisiana Public Facilities Authority. Coastal Bend issued $155.03 million of ARS, revenue, and taxable bonds in the offering.
All the proceeds were loaned to the CHRISTUS Health Obligated Group, to either refund previously issued revenue bonds, finance certain capital projects in Texas, or pay issuance costs, according to bond documents.
CHRISTUS runs more than 40 Catholic hospitals across eight states, as well as several facilities in Mexico, according to its Web site.
Proceeds from the bonds issued by Coastal Bend were used to refinance $49.92 million and $66.5 million of revenue bonds issued in 1998, finance capital expenditures for certain CHRISTUS facilities located in Corpus Christi or reimburse CHRISTUS for capital expenditures already incurred, and pay issuance costs, including a bond insurance premium.
Financial Security Assurance Inc. provided an insurance policy for all the auction-rate securities in the offering, while Ambac Assurance Corp. provided policies for the variable-rate debt, according to bond documents.
Coastal Bend Health said in the notice that it and CHRISTUS are cooperating with the IRS during the examination, and that CHRISTUS has no reason to believe the bonds have run afoul of tax laws and requirements.
The corporation also said that, for reasons unrelated to the examination, it is in preliminary talks to refund or redeem the bonds, or convert the bonds to a new interest rate period.
However, it said no final determination has been made on what to do with the bonds and that any such decision may be based on prevailing market conditions, as well as other factors.
Vinson & Elkins LLP was bond counsel on the deal, and Citi was the underwriter.
Officials with Corpus Christi, which oversees the corporation, could not be reached for comment.