The Chippewa County Board of Commissioners met in Special Session on Wednesday, January 31, 2007 at 7:00 p.m. in the Courtroom of the Chippewa County Courthouse.
Present: Commissioners Ted Postula, Don Cooper, Scott Shackleton, Richard Timmer, Bernard LaJoie, Jim Moore and Chairman Earl Kay
Also Present: Marilyn McDonald, County Treasurer, Sydney Beaune, Frank Blissett, Willard LaJoie, Chuck Leonhardt, Kevin Kalchik, CFO War Memorial Hospital, David Jahn, CEO, War Memorial Hospital, Kelly Beaune, Acting Controller and Diane Cork, County Clerk
PUBLIC COMMENTS: None
David Jahn, CEO, War Memorial Hospital, and addressed the Board to explain the financing structure that War Memorial Hospital has worked out concerning the issuance of a series of bonds for equipment and renovations to said facility.
Mr. Jahn stated that in 1988 the Hospital built a new addition and at that time the County Hospital Financing Authority was created which was a vehicle, according to State Law, you could have in order to sell bonds and give the hospital the tax exempt financing. The Board has been dormant since about 1998. Mr. Jahn was asking that this Board be reactivated.
Kevin Kalchik, CFO, War Memorial Hospital, explained the information provided to the Commissioners is to address the request and needs of The Chippewa County War Memorial Hospital to obtain tax-exempt financing allowable under The Hospital Finance Authority Act, 1969 Public Act 38. This will require certain actions of the Chippewa County Board of Commissioners in similar nature to the requirements to issue the Hospital Series A and B Bonds of 1997. The issuance of bonds through a County Hospital Finance Authority is common financing structure and is used often to provide less expensive forms of financing to hospitals throughout the State of Michigan. Mr. Kalchik outlined some of the questions he thought the Board would want to have addressed.
1. Will Chippewa County be liable for the debt service on the bonds issued by the the Chippewa County Hospital Finance Authority for the benefit of the Hospital?
No. The County Hospital Finance Authority is organized pursuant to 1969 Public Act 38. The Act specifically provides that the Authority is a public body corporate and the authority is a separate legal entity from the County. Bonds issued by the Authority are limited obligations of the Authority and not debt of the County
2. Does Chippewa County pledge its full faith and credit for the bonds or guarantee the payment of the principal or interest of the bonds?
No. The County “does not” pledge its full faith and credit for the bonds or guarantee the payment of the principal of or interest on the bonds. The debt service on the bonds is payable by the Hospital pursuant to its obligation to make payment under the loan agreement.
3. Does the issuance of such bonds limit the amount of bonds that can be issued by the County in the future?
No. As a result of the bonds not being obligations of the County, the issuance of Bonds by the Authority will not have any impact on the ability of the County to issue bonds for normal County purposes, such as bonds to finance new county buildings or bonds to finance infrastructure in the County.
4. Will Chippewa County be responsible for any of the costs associated with the issuance of these bonds?
No. The Hospital understands that there are costs associated with the bond issuance and that this should not be a cost to the County. The Hospital requests that the County work cooperatively with the Hospital to minimize any costs associated with the bond issuance. One example of this would be to utilize joint legal counsel. However, the Hospital understands the need for the County to have its own legal Counsel review any and all correspondence, therefore, the Hospital will also pay a fee to the County for this issuance equal to the legal costs incurred by the County for independent counsel.
5. What type of time commitment will be required of the Board of Commissioners and those appointed to the Hospital Finance Authority?
Limited. The time commitment of the Board of Commissioners is primarily met by the authorization and appointment to the Hospital Finance Authority. Those appointed to the Hospital Finance Authority will have a large time commitment; however, even this time commitment is expected to be very limited.
Hospital Request to the Chippewa County Board of Commissioners:
1. Adopt “Resolution Regarding Issuance of Bonds by the County Hospital Finance Authority for the Benefit of Chippewa County War Memorial Hospital”
2. Appoint members to the County Hospital Finance Authority
Term Sheet Summary (Preliminary):
Interest Rates: 4.25% to 4.85% depending on collateral and term
Use of Proceeds:
Method of Sale of the Bonds: The Bonds will be sold by the Authority via a private placement to a syndicate of banks led by Central Savings Bank. Each bank will execute an institutional investor letter in connection with the purchase of the Bonds.
Bond Issue: The issuance of Bonds will be on one of the following basis:
Anticipated Funds from issuance:
|Series A Issue is expected to be||$2,500,000|
|Series B Issue is expected to be||$4,250,000|
|Series C Issue is expected to be||$4,150,000|
|Total Issue is expected to be||$10,900,000|
Willard “Frenchy” LaJoie, Central Savings Bank President and President of the Hospital Finance Committee, noted that all the financial institutions who will be involved in this venture are fully aware that there is no full faith and credit support behind this issue from the County and they are also aware that any expenses related are going to be paid for by the Hospital. He also noted that Central Savings Bank would be the lead bank.
Commissioner Shackleton asked if once the investment is made and the equipment is in place, how many new jobs would be created for the community.
It was stated that over the last ten years, 325 jobs have been created and it would be anticipated that 5-10 additional jobs would be created.
Commissioner Timmer questioned the time and work involved for the County Treasurer.
Marilyn McDonald, County Treasurer, noted that with the 1997 bonds, the papers were signed and no further obligation was necessary. She also noted that two individuals who sat on the previous authority are now deceased.
Chairman Kay stated that there will be no increased work for the County Treasurer’s Office as all the paperwork and payments will go thru Central Savings Bank.
Phil Wolfe, auditor, said he was concerned with the SCC Disclosure rules, but the Hospital will be responsible for these. He was also concerned with the activation of the Hospital Finance Authority. Technically, a Board should be appointed every year with three members: chairman, treasurer and secretary and the County Board would appoint these via the Chair and at that point the Board can receive per diem compensation and meet regularly.
Chuck Leonhardt, Gillett, Halvorsen & Leonhardt, noted that he had verified the calculation for the $2,000,000 over five years at 4.75%. The total cost would be $2,250,000 and with the same calculation at 8.25% it is $2,447,000; the savings would be $200,000.
Chairman Kay noted that the Hospital is in a bind and would like to move forward as soon as possible. Chairman Kay asked the board to circumvent the normal procedure for appointment to boards and appoint a committee immediately. Three individuals that were mentioned as potential appointees were Marilyn McDonald, Ron Meister and Bill Lynn. Two of these people are currently on the City/County Building Authority.
Commissioner Cooper asked how long the Hospital had been working on this project and was answered that the Hospital had been working on the project about 2 years, but the bonding issue for only 2 months.
It was moved by Commissioner Timmer, supported by Commissioner LaJoie, to circumvent the normal appointment procedures and appoint Marilyn McDonald, Ron Meister and Bill Lynn to the County Hospital Finance Authority and that this board be appointed annually during the appointments to boards/agencies/authorities.
Commissioner Cooper expressed concern that procedures are in place for appointments and does not feel the need to circumvent the policy.
On the motion on the floor, roll call vote, Commissioners Postula, Cooper, Shackleton, Timmer, LaJoie, Moore and Kay voted yes. The motion carried 7-0.
It was moved by Commissioner Shackleton, supported by Commissioner Moore, to approve the following resolution:
Resolution Regarding Issuance of Bonds by the County Hospital Finance Authority for the Benefit of Chippewa County War Memorial Hospital
WHEREAS, the Chippewa County War Memorial Hospital, Inc. (the “Hospital”) has requested the Chippewa County Hospital Finance Authority (the “Authority”) to issue bonds (the “Bonds”) the proceeds of which would be used by the Hospital to purchase certain equipment and to finance certain renovations to facilities of the Hospital:
WHEREAS, the Hospital has presented the Board with a preliminary term sheet, a copy of which is attached to this Resolution as Appendix A, regarding the issuance of the Bonds through the Authority;
WHEREAS, the Bonds will be limited obligations of the Authority and will not constitute general obligations or debt of the County of Chippewa; and
WHEREAS, prior to the issuance of the Bonds a public hearing (the “Prior Hearing”) with respect to the Bonds will be held in order to satisfy the applicable public hearing requirements of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, IT IS RESOLVED by the Board of Commissioners of Chippewa County as follows:
Draft Term Sheet
Issuance of Bonds for the Benefit of Chippewa County War Memorial Hospital, Inc.
January 23, 2007
Amount of Bond Issues
2 Series of Bonds, in an aggregate total of approximately $600,000.
Amortization Period and Repayment Schedule for the Bonds
Series A (Equipment) $2 million principal amount repaid over 5 year amortization period.
Series B. (Renovation) $2 million principal amount repaid over 10 year amortization period.
Monthly payments of principal and interest with level debt service payments for each individual series, which will result in total annual debt service for years 1 through 5 exceeding total annual debt service for years 6 through 10.
Interest Rate on the Bonds
Fixed interest rate for each series of bonds. Series A (Equipment) will have an interest rate of 4.75%. Series B (Renovations) will have an interest rate of slightly above 4.75%.
Uses of Bond Proceeds
Purchase of equipment (Series A), renovation of facilities (Series B) and payment of the costs of issuance of the Bonds.
The County of Chippewa Hospital Finance Authority. Exhibit A sets forth a diagram illustrating the issuance process for the Bonds.
Flow of Funds
The Bonds will be sold by the Authority pursuant to a Trust Indenture. The proceeds of the Bonds will then be loaned by the Authority to the Hospital pursuant to two Loan Agreements. The loan repayments required under the Loan Agreements will be used to pay the debt service on the Bonds.
Method of Sale of the Bonds
The Bonds will be sold by the Authority via a private placement to a syndicate of banks lead by Central Savings Bank. Each bank will execute an institutional investor letter in connection with the purchase of the Bonds.
There will not be an official statement or private placement memorandum prepared in connection with the sale of the Bonds. Each purchaser will sign an investor letter certifying that it has completed its due diligence in connection with its purchase of the Bonds.
Limitations on Debt and Liens Contained in the l997 Bond Authorizing Documents
The 1997 Loan Agreement and the 1997 Trust Indenture set forth limitations on the ability of the Hospital to incur additional indebtedness and to grant liens in connection with additional indebtedness.
Series A Bonds Issued as Non-Parity Debt and Secured By a Lien on the Equipment Financed with the Bonds
The Series A Bonds will be issued on a non-parity basis with the 1997 bonds, and accordingly the Hospital will need to demonstrate that it meets the requirements under Section 5.10(d) of the 1997 Loan Agreement for non-parity indebtedness. The Hospital will grant a lien pursuant to Section 5.13(b) of the Loan Agreement to secure the equipment purchased with such non-parity bonds.
Series B Bonds Issued on A Parity Basis with the 1997 Bonds
The Series B Bonds will be issued as parity debt with the 1997 bonds pursuant to Section 5.10(f) of the 1997 Loan Agreement, and accordingly the Hospital will need to demonstrate that it meets the “Required Pro Forma Coverage” for such parity debt. Additionally, the Hospital will need to meet the requirements of Section 5.11 of the Loan Agreement with respect to filing certain documents with the 1997 Bond Trustee. The Series A Bonds will be secured by a lien on the Gross Revenues of the Hospital, and such security will be on a parity basis with the lien that exists on the Gross Revenues for the benefit of the holders of the 1997 bonds.
Obligation of the County To repay the Bonds
The debt service on the Bonds will be paid by the Hospital making payments pursuant to the Loan Agreement. Chippewa County will have no obligation to pay the debt service on the Bonds. The credit of the County will not be pledged as security for the Bonds.
A draft schedule showing the steps that need to be completed is attached as Exhibit B.
Issuance of Bonds Through a County Hospital Finance Authority Pursuant to a Private Placement Agreement with Local Banks.
The bonds would be issued by the County Hospital Finance Authority pursuant to the terms of an indenture. Local banks would purchase the bonds through a private placement agreement. The proceeds of the Bonds would be loaned to the Hospital and used for the purchase of equipment and for certain renovation projects. The loan repayments by the Hospital would be sufficient to pay the principal and interest on the bonds. Credit enhancement, in the form of a letter of credit or bond insurance, would not be used for the transaction.
A roll call vote on the foregoing resolution was taken and was as follows:
YES: Ted Postula, Don Cooper, Scott Shackleton, Richard Timmer, Bernard LaJoie, Jim Moore and Earl Kay
The resolution was declared adopted.
Having no further business, it was moved by Commissioner Moore, supported by Commissioner LaJoie, to adjourn. On a voice vote, the motion carried and the Board did adjourn at 7:20 p.m.
Diane S. Cork, Clerk
Earl Kay, Chairman