Erlanger Refinancing To Provide Cash For New Children's/Women's Hospital, $50 Million Erlanger East Expansion, $8.5 Million Surgical Improvements

  • Monday, October 20, 2014

Erlanger Health System officials said an overhaul of the hospital's debt will include $70 million in new loans for several major hospital projects - including $11.5 million toward a new $30 million Children's/Women's Hospital. The overall cost of the latter facility is $30 million, but the hospital is seeking significant outside gifts and support.

It will also pay for a $50 million expansion of Erlanger East Hospital on Gunbarrel Road near Hamilton Place Mall. Acute care beds will go from 43 to 107. There will be a new diagnostic cardiac catheterization lab, infusion center and other administrative, support and ancillary services.

Concerning the Erlanger East expansion, CEO Kevin Spiegel noted that is a high mix of insured patients using that facility.

The refinancing will also pay $8.5 million for a new University Hospital surgical center at the Third Street campus. It will include construction of new vascular operating rooms and a dedicated orthopedic center with inpatient beds.

Britt Tabor, chief financial officer, said Erlanger will wind up paying less in debt service patients - even with the $70 million in new loans. He said the payback will be over 30 years, and he said interest rates "are at historically low levels."

Mr. Spiegel said the hospital has long been planning the East Brainerd expansion, but could not do so due to its own operating fiscal woes. He said, "The turnaround is enabling Erlanger to access the market at just the right time. It couldn't have come at a better time."

Erlanger was finally able to access $19,587,000 from a Public Hospital Supplemental payment and essential access payments of $12,755,960 from the state - up from $10,614,900. That moved the public hospital from an $8 million loss two years ago to an $18 million profit in the last fiscal year.

Mr. Tabor announced Monday night that for the past three months Erlanger's profit was at $7.7 million. That is above the projection of $4.38 million.

He said a main factor was an uptick in hospital admissions. They were 3.8 percent over budget and 2.8 percent greater than last year.

On the debt restructuring, Mr. Tabor said taxable bonds will be able to be shifted to non-taxable bonds - at a lower interest rate - because the hospital is now the main tenant of the Medical Mall rather than leases to physician groups.

There will also be a $12 million bank loan on taxable bonds. Mr. Tabor said First Tennessee Bank offered a very low rate on that loan.

He said existing debt has become shorter-maturity and approximately $95 million will be callable this fall, "presenting an opportunity to restructure and extend debt service."

Mr. Tabor said, "By blending $70 million new money with a restructuring, Erlanger can extend its debt, lower maximum annual debt service by $4.5 million and reduce its weighted average cost of capital."

Erlanger plans to price the bonds before Thanksgiving and close by Dec. 1.

 

 

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