August 23, 2011
As expected, Central Health has obtained financing for two new health care facilities through the issuance of certificates of obligation. In addition, Standard & Poor’s assigned the organization a AAA credit rating, the highest possible.
Central Health is financing $16 million in health center expansions in order to continue increasing access to primary care. Of that amount, $6 million will fund construction of the North Central Health Center on Braker Lane at Parkfield Drive, which is expected to open later this fall at a total cost of $18 million. The majority of funding ($12 million) is derived from federal grant funding through the Affordable Care Act, awarded in October of 2010. The second facility is the existing VA Austin Outpatient Clinic in Southeast Travis County, purchased in late May. Central Health will finance $10 million of this project, with $8 million toward the purchase and $2 million for renovation.
The Central Health Board of Managers chose to obtain financing for these projects rather than use reserve funding for two significant reasons. Prior to this financing, Central Health did not have a credit rating, and now is a particularly good time to establish one as interest rates are low and Central Health’s financial condition is strong. Additionally, Central Health intends to spend down some of its reserves to further expand access to healthcare and to mitigate the effect of future tax increases.
During the process of issuing the certificates of obligation, Standard & Poor’s Rating Services assigned its AAA credit rating to Central Health. According to S&P, the rating reflects a number of positive factors, including a “diverse, deep economic base” in the region, “strong income and wealth levels,” “limited operational risk” due to Central Health’s lease agreement with Seton for University Medical Center Brackenridge (UMCB), “sustained strong financial performance and position” and “moderate overall debt burden.” Standard & Poor’s does not believe this rating will change within at least the next two years due to maintenance of liquidity and tight control over capital expenditures.
The $16 million in 15-year taxable certificates of obligation were obtained through the sale of bonds on Monday, Aug. 22. The Central Health Board of Managers approved the sale the same day and the Travis County Commissioners Court approved the transaction on Tuesday, Aug. 23. Proceeds of the sale are expected to be delivered on Sept. 20. These certificates are obligation are taxable rather than tax-exempt due to the fact that the VA clinic will continue to be occupied by a private tenant for several years. Due to the high degree of interest in the bonds, at times five to six times over the actual number of bonds available for sale and combined with a better than average interest rate environment, Central Health obtained an exceptional average borrowing rate of only 3.64 percent.
“As Vice Chair of the Board of Managers and as a CPA I am extremely pleased with the financing we obtained for these two new facilities. They will both be tremendous assets to the community and to be able to finance them under such favorable terms is truly outstanding,” Board Vice Chair Rosie Mendoza said. “I am also well aware of how meaningful the AAA rating is for Central Health. It represents our commitment to fiscal responsibility and the overall management of our resources,” she added.