Quick thinking helps hospital avoid financial difficulties

THE VILLAGES ¡ª Quick thinking by hospital administrators has saved the Central Florida Health Alliance from an unexpected increase in bond interest-rate costs and the potential for even more negative impacts.

Administrators of the health alliance ¡ª parent of The Villages Regional Hospital and Leesburg Regional Medical Center ¡ª reacted swiftly when the impact of the subprime mortgage crises damaged the ratings on two insurance companies that insure the municipal bonds issued over the years to finance the two hospitals.

¡°This really had nothing do with us,¡± Dale Hocking, health alliance senior vice president and chief financial officer, said. ¡°But it had everything to do with the financial crises on Wall Street.¡±

The roots of the problem began developing about a year ago, when a collapse of the auction-rate bond market negatively affected Ambac Assurance Corp., the bond insurance company reported earlier this year in a shareholders report.

Ambac is the insurer on $23.8 million in auction-rate bonds that the health alliance¡¯s predecessor had issued in 2001 to finance activity at the Leesburg hospital, Hocking noted.

Earlier this summer, Moody¡¯s Investors Service Inc. downgraded Ambac¡¯s insurance financial strength ratings, the New York-based ratings service reported.

¡°As a result of that and our insurer getting downgraded, interest rates just below 4 percent (on the auction-rate bonds) shot to just above 7 percent,¡± Hocking said.

While bondholders profited from the action, Hocking said, the health alliance picked up the cost.

¡°It just started creeping up,¡± Hocking said. ¡°It happened over a few weeks.¡±

That 3 percent increase on $23.8 million in auction-rate bonds translated into about $60,000 more a month for the health alliance in bond interest payments, Hocking said.

¡°That¡¯s money all paid to the bondholders,¡± Hocking said. ¡°Institutional investors were reaping the benefits of these very high rates.¡±

By refinancing the $23.8 million in auction-rate bonds, Hocking said the health alliance secured almost $22.7 million in variable-demand bonds at 3.35 percent.

Rather than use an insurer, Hocking said, the health alliance now insures those bonds with a guaranteed bank letter of credit.

A similar situation accounts for why the health alliance is in the process of refinancing $75 million in variable-rate demand bonds issued in 2006 to build The Villages hospital.

¡°We¡¯re actually working on that now for the same reason,¡± Hocking said. ¡°The bond insurer¡¯s rating declined.¡±

In that bond issue, the health alliance¡¯s predecessor used Radian Asset Assurance to insure the $75 million in bonds.

Out of fiscal prudence, Hocking added, health alliance administrators decided to refinance the $75 million in bonds and insure them with a guaranteed bank letter of credit.

¡°The hospital¡¯s internal bond rating has remained the same throughout all of this,¡± Hocking added. ¡°This all has to do with the rating of the insurer.¡±

David R. Corder is a reporter with the Daily Sun. He can be reached at 753-1119, ext. 9066, or at david.corder@thevillagesmedia.com.‚6”7