Although the exact implications of North Texas Hospital in Bridgeport filing for bankruptcy are not yet clearly outlined, it has been assumed for some time now that the city – and other unsecured creditors – will not receive any money from the now-bankrupt hospital.
According to the hospital’s bankruptcy filing (see separate story) the hospital owes the city – its biggest unsecured creditor – $3,393,580.74 for a line of credit guaranteed by the city and for extended credit to the hospital for utilities.
It’s a “worse case scenario” city officials have long anticipated.
“From an accounting perspective, there is no impact. We’ve prepared for it,” City Administrator Brandon Emmons said. “Financially, we’re out the money; we’ve been out that money. That’s nothing new.”
Mayor Keith McComis added: “We’re out $3 million. We’re right where we were. But it’s under control. We already took steps to prepare for this.”
Last December, the city council approved issuing revenue bonds – paid out of surpluses in the water and sewer fund – to repay the $3 million that was due the next month on the line-of-credit note the city guaranteed for the hospital. The payment schedule arranged for interest-only payments for the first two years and principal-and-interest payments for at least an additional 18 years before refinancing.
“We’re committing ourselves and our successors to something long term,” McComis said then. “We’re talking 30 years or so.”
After constantly finding himself and the rest of the council dealing with the long-term decisions of past administrations, McComis forthrightly opposes entering perpetual agreements. But he acknowledges the necessity of the bonds.
“It needed to be done,” he said. “The city shouldn’t be in the hospital business, plain and simple. But we got involved, and now we have to deal with it.”
Without a permanent funding source and project seed money dried up, hospital officials enlisted the help of InnoVative Capital in March 2005. The banking and advisory firm proposed a composite-funding structure that included matching work capital bank credit lines guaranteed by the city and community.
Hospital organizers approached the city about entering such a contract with them. When council approved a Section 380 Economic Development Incentive Agreement later that month, the city pledged $2.5 million of the city’s assets to help secure interim financing as a guarantor through Compass Bank.
But city officials were misled, McComis said.
“(Hospital organizers) talked to another group of people about getting a line with them,” he said. “They told the council that they would spend their money before coming to us for ours. And they told the other group of people the same thing. There were several discrepancies and big promises.
“Basically, we were scammed,” he continued. “But the city did not take the necessary steps to protect itself before opening the line of credit. We went on good faith. Now we have to honor it. It’s been done. Now we have to make the best of it. There’s nothing else that can be done.”
In May 2009, the hospital exhausted its $3 million line of credit. The city agreed to make payments through August 2010, expecting the hospital would be able to resume honoring its obligation at that time.
When it became clear that the hospital would not be able to uphold its end, city officials pursued declaratory action in the district court, questioning if “this was a legal debt not.”
“The findings were that it is a legal debt, and we are obligated to pay,” McComis said in a column that ran in the weekend edition of the Messenger. “Furthermore, they stated that if we did not pay the debt, we would be in contempt of court.”
Since that ruling, the city filed and was granted a lien on the hospital in February 2012.
“What this means is the city took steps and precautions to protect our interest in this matter as best as the law will allow,” McComis said. But the lien is meaningless now that the hospital has been granted bankruptcy protection in federal court.
Amidst all this, the city issued the revenue bonds, basically taking the debt as its own and making long-term arrangements to pay it off. This action, McComis contends, will ensure that the city’s operations are not affected.
“Taxes and utilities and other city services will not go up because of this,” McComis said. “We’ve made the necessary arrangement to handle and make payments (on the hospital debt) without impacting these services. The filing for bankruptcy will not change how we operate. We just have a note that we have to pay on for a long time.
“There aren’t too many people happy about it. I’m not happy about it,” he continued. “But it’s water under the bridge at this point. We have to deal with it … It’s not going to hurt our financials – just our pride and ego.”