Wise Regional Health System will save almost triple what it expected to save by refinancing its 2004 construction bonds.
The hospital on Wednesday refunded $87.6 million in bonds on which it was paying an average of 7.1 percent interest, while borrowing an additional $10 million for future construction projects.
Even with all the costs of the transaction folded in – about $2.8 million – Wise Regional still got a 5.39 percent interest rate that will save them $11.4 million over the life of the bonds.
They had expected to save between $4 and $5 million.
“Essentially, we’re lowering the payments about $100,000 a year from where they are right now – and getting another $10 million,” Chris Janning, senior vice president at First Southwest, told the board in a special meeting Wednesday afternoon.
“The net present value savings is $11,406,059, which is just under 13.5 percent of the bonds,” Janning said. “That’s the principal we’re refunding.”
The Governmental Finance Officers Association (GFAO) has a benchmark that says if an entity can get 3 percent net present value savings or more, it’s a good deal.
“We got four good deals,” board member Gary Cocanougher said. “At that last meeting, we thought $5 million [in savings] would have been a home run – this was a grand slam in the bottom of the ninth.”
So how did Wise Regional get such a favorable rate?
Janning said the hospital’s state-of-the-art facilities are impressive – and one firm actually sent a representative out for a tour in Decatur, Bridgeport and the new Parkway facility in Fort Worth. He also credited hospital administration for their openness, answering everyone’s questions.
But the market also played a huge role.
“What’s happened since March is that rates have come way down – almost 1 percent in the general market,” he said. “All these bonds are maturing, and no one’s borrowing money for new projects.”
That means Wise Regional’s $99 million in bonds was one of the best deals on the U.S. bond market that day. When traders started making calls Wednesday morning, they found 17 times as many orders as they had bonds to sell.
When $1.7 billion is available to buy $99 million in bonds, the cost goes down. It’s a seller’s market.
“What you had was essentially a separate auction for each bond,” board member Mark Duncum observed.
“It was a negotiation where the Bank of America and Cain Brothers sales people were talking to these buyers, people were putting in orders … then they’ll go back and say, ‘Hey look, we’ve got all these orders. If you really want these bonds, we’d consider a lower rate.’ Then they’ll put in another order.”
He said the firms that don’t get bonds will not be happy.
“Nobody’s going to be happy – except us,” he said.
The board passed a resolution approving the sale and authorizing the issuance of the bonds. That completed the sale, which closes June 25.
“When we pass this resolution and you vote to approve it, you have a hard contract,” Janning said.
Cocanougher commended Wise Regional CEO Steve Summers and his staff for their hard work.
“I think the staff and everybody did a great job getting this done,” he said. “It’s going to be a great thing for the hospital and the whole community.”
Janning said Merrill-Lynch and his firm, First Southwest, will both brag about this transaction coast-to-coast for a long time.