Metro Plans Construction Bond Sale

July 19, 2004
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GRAND RAPIDS — Metropolitan Health Corp. expects to have a financing package in place and resume construction on a new $150 million hospital by mid-September.

Nearly a year after ground was broken for the suburban hospital campus, Metro Heath directors have decided to pursue a conventional bond sale to finance the project, rather than Federal Housing Administration financing.

While a financing package through the federal agency would come with a lower interest rate, the inability to have a FHA bond sale processed quickly and the associated costs, including paying contractors prevailing wage, would largely erase the savings.

“At this moment it does not appear as a good option,” Metro Health Chief Financial Officer Bob Smedes said of the FHA. “It’s clear to us now they’re not going to do a deal on a fast track.”

Metro Health in June halted construction on the 448,000-square-foot hospital portion of a “health care village” envisioned for a 170-acre parcel on the Wyoming-Byron Township line. Work on building roads and installing utilities at the site continues.

The health system is now preparing for a conventional bond sale of  $165 million to cover the cost to build and equip the new hospital and refinance existing debt, Smedes said.

“We’re moving right along,” said Smedes, who expects the bond sale to come after Labor Day and construction on the hospital to resume at about the same time.

Contractors have indicated they can alter their schedules to resume hospital construction in September after a 90-day pause, Smedes said.

Metro Health initially planned to conduct a conventional public bond sale last December to finance the project but halted the sale amid negative publicity over the settlement of a federal whistleblower lawsuit.

The health system agreed to pay a $6.25 million fine to the federal government to settle the allegations that former executive Mary Scott raised in 2002 about Metro’s business practices, including alleged cozy business relationships with physicians that did not comply with federal law. The settlement involved a handful of the original allegations.

Scott, Metro’s one-time senior vice president of network development, continues to push her claim that she was fired in retaliation for raising her concerns — Metro claims she was let go in a corporate reorganization — as well as an amended claim filed in March that alleges defamation and seeks damages of $10 million.

Metro Health officials disputed her allegations and said in December they agreed to settle the case with the federal government because they didn’t want it to interfere with the development of the new hospital campus and they wanted to avoid costly and lengthy litigation.

In the months after the settlement, and after delaying the initial bond sale, Metro Health executives decided to re-examine the FHA option, which they had earlier discounted. Now, after rejecting FHA financing again, Metro Health is in pre-market phase for a conventional bond sale that will use variable and fixed-rate bonds, Smedes said.

The weeks until the September sale will give Metro’s underwriter, UBS, time to promote the bond sale.

“We really need to have a fair amount of time out to be out in the market talking,” Smedes said.

Metro Health to date has financed the construction and site work with cash reserves. That includes proceeds generated through the sale last fall of its Medicaid HMO, Community Care Plan, which netted $15 million, and the sale late last year of eight health plazas for some $14 million.

Metro sold the health plazas to a private investment group that leases them back to Metro to operate.           

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