Texas Hospital Refunds Bonds To Save $3.5 Million in Interest Rate Expense

LA GRANGE, Texas (Sept. 24, 2013) – St. Mark's Medical Center, located in La Grange, Texas, recently completed an advance refunding of outstanding tax-exempt bonds with the assistance of Lancaster Pollard,  a national investment banking and mortgage banking firm headquartered in Columbus, Ohio, saving millions of dollars in interest rate expenses for the hospital. The financing team was led by Vice President Scott Blount.

"The advanced refunding of our tax-exempt bonds was incredibly beneficial to the hospital," said Dennis Boyd, St. Mark's chief financial officer. "We saved several million dollars in interest expense and positioned the hospital to be financially stronger in an uncertain health care environment."

The nonprofit hospital wanted to take advantage of low interest rates and refund tax-exempt bonds insured by the Federal Housing Administration (FHA) Sec. 242 mortgage insurance program that were used to fund a replacement facility in 2004. Because eliminating interest rate risk was paramount, the hospital's leadership chose an advance refunding by defeasing the bonds via a FHA loan modification. The transaction lowered the hospital's interest rate on the FHA note by 33%, providing the hospital a present value savings of about $3.5 million over the remaining term of the loan. In addition, the hospital was able to reduce its outstanding debt from $21 million to $19.5 million because taxable GNMA securities were used to eliminate the tax-exempt bond structure, thereby improving the hospital's balance sheet and leverage ratios.

Blount said, "By using the FHA loan modification program, which has faster processing times, the hospital was able to lock in an interest rate 1.5 percentage points lower than the previous rate while mitigating interest rate risk inherent in a rising rate environment."  

St. Mark's Medical Center is a not-for-profit community hospital serving the needs of patients in the central Texas communities of Fayette and Lee counties. Part of the Community Hospital Corporation family of hospitals, St. Mark's Medical Center provides an array of comprehensive healthcare services that range widely from surgical services, a birthing center and specialist care to cardiac rehabilitation, and general acute care services. St. Mark's also offers state of the art imaging and is designated as a Level IV Trauma Center.

Lancaster Pollard helps health care, senior living and affordable housing organizations expand and improve their services by providing financing solutions. The firm offers a full range of investment banking, mortgage banking and investment advisory services and has one of the largest groups of financial professionals dedicated to health care in the country. As a leading underwriter of bonds and mortgages, Lancaster Pollard has earned a reputation for delivering sound financial advice and the most cost-effective financing options available in the market.

For more information about the St. Mark's Medical Center transaction and other hospital financings, visit www.lancasterpollard.com/hospital-financing.aspx.