City of Ashland, Oregon / City Recorder / City Council Information / Packet Archives / Year 2003 / 10/21 / Hospital Financing
Hospital Financing
[Council Communication] [Loan Terms]
Council Communication
| Title: |
Motion Authorizing to Pledge City Assets to Secure a $10
Million Borrowing by Ashland Community Hospital for New Construction. |
| Dept: |
Finance Department |
| Date: |
October 21, 2003 |
| Submitted By: |
Lee Tuneberg, Finance Director |
Approved
By:
........................... |
Gino Grimaldi, City Administrator |
| Synopsis: |
This authorization will permit the City Administrator or
Finance Director to sign loan documents pledging city-owned Ashland Community
Hospital (ACH) assets to secure borrowing $10 million to finance construction
of an expanded surgery center and related core hospital area. |
| Recommendation: |
Staff recommends approval of a motion to authorize the pledging
of hospital property assets to secure a $10 million borrowing by Ashland
Community Hospital for new construction, contingent upon the hospital:
1. meeting the terms of the proposed bank loan at ACH's expense prior to
proceeding with construction,
2. reporting annually to the City on debt service coverage, and
3. meeting all land use and building plan review requirements. |
| Fiscal Impact: |
Approval encumbers City assets giving the lending institution
the ability to sell the assets to pay the debt if ACH should default on the
loan. This action could jeopardize hospital assets owned by the City but
would not significantly impact other municipal operations if foreclosed by
the bank. |
| Background: |
In 1996 City of Ashland and the Ashland Community Hospital entered into
a lease agreement where ACH leases from the City the existing hospital property.
The property remains a City asset as do any improvements. In Section 3.1.3
of the Definitive Agreement between the City and ACH, the entities agreed
that the City would not unreasonably withhold its agreement to acquire and
finance additions. ACH has sought a bank loan that appears to meet its project
schedule and financial plan in lieu of a bond issue.
ACH is requesting approval to move ahead with a $13 million expansion of
their surgery area and is in need of the City's approval to pledge as security,
existing hospital assets for a $10 million loan with Umpqua Bank. These assets
are currently held on the City's balance sheet with a value of approximately
$5 million but probably have a much greater appraisal value.
This is the first indebtedness since 1996 so that there has been no real
need to review ACH finances per the lease. This project will require an annual
review and calculation of debt service coverage per Paragraph 3.1.6.4 of
the Definitive Agreement in addition to those evaluations required by the
bank. As part of approval ACH will have to submit an annual financial report
as of December 31 to the City for debt coverage verification per Section
3.1.7. Additionally, the City would require a copy of any appraisal done
on ACH assets owned by the City. |
| Attachments: |
Umpqua Bank Loan Terms Sheet |
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