Metro Won't Open Before 2007
GRAND RAPIDS — A combination of factors have led Metro Health Corp to wait until next spring to sell $160 million in bonds to finance development of a new suburban hospital campus.
They all lead to a more favorable market for the bond sale, even though waiting means the new hospital won’t open until mid-2007, a year later than initially planned, Metro Health CEO Mike Faas said. Metro, which halted construction of the hospital facility in June as financing options were explored, will resume work on the new hospital late next spring, after the bonds to finance the project are sold, Faas said.
“This is very reasonable to do. It makes sense. It positions you in the best part of the market at the right time and with all of the data,” Faas said. “It’s more important to do the right thing, the right way, with the right financing consequences and with savings for the community than to be in a hurry-up mode.”
Metro Health broke ground on the new 208-bed, 448,000-square-foot hospital in August 2003. The hospital will anchor a “health care village” that Metro envisions will evolve on the 170-acre site in southern
The village would feature complementary medical services developed around the new hospital, such as a fitness center, as well as an assortment of retail, restaurants and other businesses surrounding the campus.
The health system originally planned for a traditional bond sale to finance the project in the months following the groundbreaking. The bond sale never proceeded, in part because of the bad publicity over a $6.25 million out-of-court settlement in a federal whistleblower lawsuit brought by a former executive, Mary Scott. In settling the case, Metro executives denied any wrongdoing and said they wanted to avoid costly litigation and get the case behind them to concentrate on the new hospital project.
Scott continues to press a wrongful termination and defamation case against Metro.
After the initial bond sale fell through, Metro began to examine other options, including securing financing through the Federal Housing Administration, which required Metro to halt construction on the hospital portion of the project. Work on installing infrastructure at the site has continued.
Metro has paid for the work thus far with cash reserves, expending about $28 million, Faas said.
After concluding the FHA option wouldn’t generate the cost savings expected, Metro Health’s directors then decided to return to and prepare for a traditional bond sale.
On advice of bond counsel, the decision was made to wait until the spring to sell the bonds. Contributing to that decision, Faas said, was a need to complete an audit for the 2004 fiscal year that ended June 30, have a new prospectus written and re-establish a bond rating.
The timing of the sale, toward the end of the year, also wasn’t optimal, Faas said. Metro’s advisers said that investors often hesitate to add health-care bonds to their portfolio in the second half of the year, and that the upcoming presidential election may divert investors’ attention, as may the subsequent holiday season, according to Faas.
While delaying the bond sale may mean Metro gets a less favorable interest rate, the health system will need to borrow about $5 million less than initially anticipated, offsetting any higher cost of borrowing, he said.
At the same time that Metro Health is preparing for the bond sale and working with The Granger Group to market parcels surrounding the new hospital, directors also have launched a new cost-cutting initiative. The goal is to trim $10 million in costs, or about 5 percent of expenses. The cost-cutting initiative is on top of the projected efficiency gains the new campus will generate for Metro.
“Keeping things in perspective and remembering the impact this project will have in the long run is an even more important part of that job. Delays are temporary, and becoming more efficient is necessary, but the improvements this project will make in the end will be permanent. We are doing something that will impact health care here for generations to come and intend to take whatever time needed to do it right,” stated a letter to community leaders signed by Faas and Metro Board of Directors Chairman Doyle Hayes and Vice Chairman Steve Van Andel.