AUGUSTA — Borrowing the money to build new regional hospital is quite unlike borrowing the money to buy a home.
For example, there’s no shopping around at financial institutions.
MaineGeneral Medical Center can get a $320 million loan, financed over 30 years, from only one entity — the Maine Health and Higher Educational Facilities Authority — to fund construction of a new 192-bed hospital in north Augusta.
And there is a single avenue of funding available — the Standard Stand Alone Loan Program, according to Robert Lenna, the authority’s executive director.
“Stand Alone Bond Issues are issued solely on the credit strength of the individual borrower,” the authority’s website says.
The board looks at applications from eligible borrowers such as MaineGeneral, with a special look at revenues, before deciding “whether it’s a prudent loan to make or a prudent loan with restrictions,” Lenna said.
The authority board members include the commissioners of the Department of Heath & Human Services and the Department of Education, the state treasurer and the superintendent of financial institutions, as well as eight other individuals representing hospitals, colleges, and businesses. The board votes on an application after getting a recommendation by the authority staff.
MaineGeneral formally began the borrowing process in November 2010, shortly after receiving approval to build the facility from the commissioner of the Maine Department of Health & Human Services.
Lenna said the authority has begun reviewing the hospital’s application, and has requested more information.
“The hospital is gathering it,” he said. “Three hundred and twenty million dollars is a lot of money. We’re giving it close scrutiny and review.”
Among the reviews is a feasibility study to show how the money will be repaid, Lenna said.
Lenna said last week he expects the review process to take some three to four more months before it reaches the board for a vote.
“It depends on how long it takes up to do our review,” he said. “It will be the single largest, new money, new construction health care project that the authority’s ever done.”
The authority was created in 1971.
Unlike most would-be house purchasers, the hospital does not need a down payment.
However, part of the application indicates that MaineGeneral is bringing almost $88 million to the table as an equity contribution and an additional $5 million in other funds.
The total cost of the new regional hospital, including construction, equipment, engineering and architectural fees, has been tabbed at $412 million.
The hospital proposal has already undergone a lengthy review process by the Department of Health & Human Services, which resulted in approval, but Lenna said the authority concentrates on the financial angle.
“We look at it based solely on the credit and financial condition of borrowers,” he said. “Our focus is much narrower than (DHHS). We look at it as a credit institution.”
Lenna said the board asks, “Does the borrower have sufficient revenues to pay off the bonds or project additional revenues?”
As part of the process, MaineGeneral will have to obtain a credit rating by one of three nationally recognized credit-rating firms: Fitch, Standard & Poor or Moody’s.
“We started that process this week,” Chuck Hays, president and chief executive officer of MaineGeneral Medical Center, said Friday. “We have interviewed with Fitch and Moody’s. They had come in and we had done a presentation.”
He said the rating process should be completed within three or four weeks.
Hays also said the hospital is obtaining an independent financial review of the project — another item requested by the Maine Health and Higher Educational Facilities Authority.
Using the authority as a conduit for the financing allows the hospital to offer tax-exempt bonds, which reduces the interest rate, Hays said.
The interest rate to be paid by the hospital will be determined by its bond rating.
For instance, Lenna said if the hospital receives an A rating, the average interest rate over 30 years would be “somewhere in the vicinity of 5.5 percent. If it’s one category lower, BBB, then the interest rate for the same term and amount would jump closer to 7 percent.”
The interest earned on bonds issued by the authority is exempt from state and federal taxes.
Betty Adams — 621-5631
badams@centralmaine.com
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