Taxpayers will reap benefits of lower interest rate
Dallas County Hospital District (dba Parkland Health & Hospital System) successfully completed the sale of $705 million of bonds August 26. Taxpayers will realize more than $120 million in savings from the financial strategies that Parkland employed to take advantage of Build America Bonds provided through The American Recovery Act.
“The sale moved quickly and we did extremely well. Two AAA ratings, the financial strength and support of Dallas County, defrosting of the credit markets and great sales execution allowed us a significant interest rate advantage, affording us a low interest rate that will in turn save the taxpayers millions in funding of the hospital campus replacement project,” said John F. Dragovits, Parkland’s executive vice president and chief financial officer.
Parkland issued $705 million in three series of limited tax bonds – about $680 million in Build America Bonds ($222.5 million in 10 year par call Build America Bonds and $457.7 million in make whole call Build America Bonds) and approximately $24.8 million in traditional tax-exempt bonds. Issuing a majority of the bonds as Build America Bonds, a federal stimulus program that provides a 35 percent interest payment subsidy to public entities, resulted in a significantly lower interest rate than traditional tax-exempt bonds.
In addition, Parkland was rated AAA by both Fitch Ratings and Standard & Poor’s Rating Service. This credit rating – the highest credit rating possible – is estimated to provide Dallas County taxpayers present value savings of approximately $18 million in interest costs. Further, Parkland officials decided to issue the full amount of tax supported bonds now, rather than over two or more issues, to lock in current interest rates that are near historic lows and to eliminate the financial risk of rising interest rates.
“We secured an overall average interest rate of 3.71 percent, significantly less than the 4.50 percent interest rate assumed in the original financing plan,” Dragovits said.
With this significant savings, and despite a decline in property values, Parkland’s modeling suggests that required tax support for the bonds will be at or less than $0.018 per $100 of taxable assessed valuation in 2011 through 2013, rather than the $0.02 in 2011 and $0.025 in 2012 and 2013 estimated by the original financing plan and approved by Dallas County voters. Still an additional 2 cents per $100 of property valuation is expected in 2010.
Interest payments on the bonds in fiscal year 2015 – anticipated to be the first full year of operations at the new campus – are approximately $6 million less than estimated by the original financing plan.
“We believe it is our responsibility to work hard for real savings such as these. Regardless of our status as a public institution, we aim to operate as efficiently and effectively as any business. We owe that to our stakeholders, that is, the taxpayers of Dallas County,” said Ron J. Anderson, MD, Parkland’s president and chief executive officer.
The underwriting team was lead by Merrill Lynch & Co. and included Cabrera Capital Markets, LLC, J.P. Morgan, Kipling Jones & Co., LTD, Loop Capital Markets, LLC, Ramirez & Co., Inc., Siebert Brandford Shank & Co., LLC and Southwest Securities, Inc. Financial advisory services were provided by First Southwest Company and Estrada Hinojosa & Co. Co-bond counsel was Vinson & Elkins, LLP and West & Associates. Co-underwriters counsel was Locke Lord Bissell & Liddell, LLP and Mahomes Bolden Warren Sigmon PC.
In November 2008, Dallas County voters overwhelmingly approved by 82 percent a bond issue from which proceeds would be used for construction of a new hospital. The $1.27 billion project includes an 862-bed hospital, outpatient center, office center and parking. In order to reduce the burden on taxpayers, the financing plan includes not only $747 million of combination tax and revenue bonds, but also $350 million from Parkland’s current and future cash reserves and $150 million in philanthropic dollars raised by the Parkland Foundation. Construction is planned to begin in early 2011.
