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Articles / 2011

$350 million from bonds means private Ventura hospital set to begin building

Ventura County Star
Saturday, 08/17/2011
By Tom Kisken

The wiring of the money culminates a nearly three-year journey in which the nonprofit hospital was turned down by one government loan guarantee program and told by another it would have to dramatically change its plans. As a result, hospital leaders opted to borrow on their own credit, assuming the risk alone, in a bond financing arrangement finalized this week.

On Thursday, contractors begin work on underground pillars so inspectors from the California Office of Statewide Health Planning and Development can assess their structural integrity. A groundbreaking will be held in mid-September and excavation of the fenced-in construction site, directly behind the existing hospital, will follow.
Triggered by changing earthquake standards for California hospitals, the project is set to be finished in March 2015, said Community Memorial CEO Gary Wilde.

Hospital officials explored having the financing guaranteed through the Federal Housing Authority, meaning the agency would cover payments if the hospital was unable to make them. Wilde said the hospital was told the agency doesn't fund high-budget projects categorized as design-build, meaning a single contractor is used to design and build the project. To get in the program, the hospital would have had to change its plan.

The state's Cal-Mortgage program offers loan insurance for hospitals pursuing upgrades. Hospital officials said program leaders blanched at a construction project that will total $268 million.

"They decided it was too big of a loan for their portfolio," said Dave Glyer, the hospital's chief financial officer.
Wilde said the hospital borrowed $350 million over 30 years — more than the cost of the project — for reserves that would help offset any future financial struggles, though officials said the hospital made more than 6 percent in profit last year.

Going without bond insurance means hospital officials could forfeit control of Community Memorial if they can't meet terms of the financing. But Wilde said exposure is minimal because the terms are conservative enough to be comfortably met. He cited a requirement that calls for the hospital to have 60 days of operating cash in reserve when the new facility is built; Community Memorial will triple that reserve amount.

"This was going to cost us a lot more money and it was going to be more restrictive," he said of financing construction through government loan insurance, calling the current deal "the least expensive and most flexible."

Gerald Arcuri, regional vice president of the Hospital Association of Southern California, said it would have been unusual before the recession of 2008 for a hospital like Community Memorial to finance a project without outside support or loan guarantees.

"Now almost nothing is unusual," he said. "The methods of hospital financing are all over the map. If a hospital has a long-standing history of relative success... then they are a hospital that could take on that risk and have a reasonable chance of success."

Ventura City Manager Rick Cole noted the hospital, which has about 2,000 employees, is the largest private employer in the city. He said construction of the new hospital means Community Memorial and the Ventura County Medical Center will continue to anchor a medical sector that brings high-wage jobs to the community.

Also pushed by changing seismic requirements, the county will upgrade the hospital by building a new wing in a $175 million project.

Community Memorial's new hospital will include 250 beds; all of the rooms will be private. The existing hospital will remain and be used for administration, labs and other services.