HomeMy WebLinkAboutAgenda Statement 1978/03/14 Item 03c - (1)CITY OF CFi~LA VISTA '
COUiVCIL AGENDA STATEMEiUT Item No. 3c -(1)
For meeting of 3/14/78
Request for permission to refund existing bonds - Community Hospital of Chula Vista
ITEM TITLE Resolution~'f~/ - Approving Community Hospital of Chula Vista's
Program t o Refund its Outstanding Obligations and to Provide New Money,
Approving its Articles of Incorporation and Bylaws, as amended, and Accepting
the Gift of a Project Financed by such Obligations
SUBMITTED BY City Attorney
ITEM EXPLANATION (4/5TH'S VOTE REQUIRED YES NOX )
Representatives of the Community Hospital of Chula Vista, including ~1r. Terence ~~1cCarty
of Stone & Youngberg and Mr. John Whitney, attorney for Community Hospital, have dis-
cussed for several months a program of refunding the outstanding obligations of Community
Hospital and entering into a new bonding arrangement to provide new money for the hospital
which will take advantage of lower interest rates and provide funding to accomplish cer-
tain other goals.
As Council is aware, Bay General Community Hospital undertook a similar program in
July of 1977, which resulted in a substantial savings to Bay General Hospital over the
next thirty years as well as providing immediate capital .resources. The Community
Hospital now wishes to undertake the same type of program. A detailed explanation of
the program has been provided to the Council and a representative of Stone & Youngberg
and Mr. Whitney will be present at the Council meeting to respond to any questions.
As Council is aware, in order to carry out such a program under the authorization of
the Internal Revenue Service, it is necessary that the City of Chula Vista approve
said program by the adoption of the appropriate resolution which has now been prepared.
It is the opinion of the City Attorney that although the program is highly technical
and complex, which has many aspects that are not easily understandable, that the
approval of the program by the Council will in no way change the relationship of the
City of Chula Vista and the Community Hospital of Chula Vista and will not increase
the existing liabilities and responsibilities of the City relative to the operation
of the Community Hospital.
Therefore, it is recommended that the Council approve the resolution as submitted in
order to place both of our excellent hospital facilities on a similar financial footing.
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Agreement Resolutions Ordinance Plat Notification List
~ Other Letter ENVIRONMENTAL DOCUMENT: Attached Submitted on
FINANCIAL IMPACT N/A
STAFF RECOMMENDATION Approval of Resolution
BOARD/COMMISSION RECOMMENDATION N/A
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COUNCIL ACTION
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COMMUNITY HOSPITAL OF CHULA VISTA
ANON -PROFIT CORPORATION
March 7, 1978
The Honorable City Council
City of Chula Vista
276 Fourth Avenue
Chula Vista, California 92010
Dear Council Members:
Community Hospital of Chula Vista is in the process of refunding its
existing bonds in order to take advantage of lower interest rates and
to accomplish certain other goals. The refunding can only be carried
out with your consent.
We request that this item be placed on the Council agenda for its
regular meeting on March 14, 1978. Your approving action will be
greatly appreciated.
Sincerely yours,
~~
David F. Wilson
President
Board of Directors
DFW:sh
(~ .7-`/ ~ ~ U0~ A,~cY
7S1 DORA LANE P. O. BOX .1297 CHULA VISTA CALIFORNIA 92012 714 - 421- 6110
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STONE 8~ YOUNGBERG
MUNICIPAL FINANCING CONSULTANTS, INC.
March 8, 1978
Honorable Mayor and Members of
the City Council
City of Chula Vista
City Hall
Chula Vista, California
Dear Mayor Hyde and Members of the Council:
At the meeting of the City Council on Tuesday, March 14, 1978, you will
have before you a proposed resolution approving the issuance by the
Community Hospital of Chula Vista (the "corporation") of up to $10, 250, 000
Hospital Facility First Mortgage Refunding Bonds and up to $6, 500, 000 Special
Obligation Refunding Bonds . The resolution also provides that the City of
Chula Vista accepts the gift of the Hospital when all of the Refunding Bonds
are paid . The Corporation is asking for approval of this resolution so that
interest on both the Refunding Bonds and the Special Obligation Bonds may
be declared to be exempt from Federal income taxation under present Fed-
eral income tax laws and regulations , thereby permitting the Hospital to
utilize less expensive tax-exempt financing instead of taxable financing .
Although the resolution specifies a maximum indebtedness that may be in-
curred, the actual financing is presently estimated at $9, 840, 000 of Hospital
Facility First Mortgage Refunding Bonds and $5, 480, 000 of Special Obligation
Refunding Bonds (the latter of which will not be treated as a debt of the
Corporation, since interest and principal payments will be met from United
States Treasury Obligations purchased from Special Obligation Bond proceeds
and deposited in an irrevocable escrow fund) .
In 1973, the Corporation issued $7, 575, 000 of Hospital Gross Revenue Bonds
and $1, 800, 000 of Subordinated Limited Revenue Notes to finance the con-
struction of the new 131-bed Hospital. Construction is complete and the
new Hospital has been in operation since 1975. Prior to the time the 1973
financing was accomplished, the Chula Vista City Council adopted resolutions
containing the same general provisions as the resolution now before you. The
present resolution is one of the necessary steps needed to accomplish the re-
funding of the outstanding indebtedness .
SUITE 2750 ONE CALIFORNIA STREET SAN FRANCISCO. CALIFORNIA 94111 (415) 989-2300
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Honorable Mayor and Members of March 8, 1978
the City Council, Chula Vista Page 2
As financing consultants to the Community Hospital of Chula Vista, we are
providing you with summary information pertaining to the proposed debt
refunding program being undertaken by the Hospital. The primary purpose
of the refunding is to take advantage of interest rates that are currently lower
than those that were in effect at the time of the initial financing in 1973, and
to remove certain unworkable provisions that were incorporated into the 1973
bond indenture. On the basis of preliminary proposals submitted by under-
writers of the refunding bonds, we believe that the Hospital will realize a net
reduction in debt service costs of approximately $2 , 300, 000 over the term of
these bonds as compared with debt service on the outstanding indebtedness
over the same term. Under the existing indebtedness, the Corporation is com-
mitted to a net effective interest rate of 7.5359 percent per annum, and under
the refunding plan the average interest rate is presently estimated at approxi-
mately 7 percent per annum, assuming a continuation of present market
conditions and certain rating levels for the Refunding Bonds .
Essentially, the refunding plan will accomplish four objectives:
1. Reduce annual debt service costs to the Corporation, which should
have a beneficial effect on Hospital rates and charges .
2. Remove certain provisions from the existing bond indenture which
have been found to be unworkable and have caused the Corporation
to be in technical default because of the impossibility of compliance.
3. Establish a fully funded debt service reserve (of approximately
one year's principal and interest) as additional security, which
will produce interest earnings for application to debt service payments.
4. Provide approximately $130, 000 of funds for the purchase of an
essential piece of equipment to be used in the operation of the
Nuclear Medicine Department of the Hospital.
Under the refunding plan a portion of the proceeds from the Refunding Bonds
and the Special Obligation Bonds will be used to purchase United States Treasury
obligations which will be sufficient to meet all future interest and principal pay-
ments on the outstanding bonds and notes. By this action, the obligation of the
Corporation under the existing bond and note indenture will be extinguished .
After the refunding, the only obligation of the Corporation will be for debt service
payments on the $9, 840, 000 principal amount of Hospital Facility First Mortgage
Refunding Bonds (as previously stated, the Special Obligation Refunding Bonds
will be paid from principal and interest on U . S . Treasury obligations , not from
operating revenues of the Hospital) .
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Honorable Mayor and Members of March 8, 1978
the City Council, Chula Vista Page 3
Neither the Refunding Bonds nor the Special Obligation Refunding Bonds will
be a debt of the City of Chula Vista, nor will the City be obligated in any way
to make payments of interest or principal on such bonds, or to pay any opera-
ting costs of the Community Hospital of Chula Vista. All such payments and
obligations are the sole responsibility of the Corporation .
I plan to be present at the City Council meeting on Tuesday, March 14, 1978,
and will be pleased to answer any questions about the proposed refunding plan .
Very truly yours,
STONE&YOUNGBERG
Municipal Financing Consultants , Inc .
.c~,c. ~
Teren .McCarty
Vice President