-February 13,2019-
The City of Tulare gave approval to move forward on a $9 million loan to the Tulare Regional Medical Center February 14 on a 2 to 1 abstention vote.
The abstention came from Vice Mayor Dennis Mederos who cited a city rule that allowed his vote to be counted in terms of a quorum in this circumstance. Council member Carlton Jones was again a no-show at the special meeting. He has said the risks of a loan were too high. Council member Greg Nunley has cited a conflict of interest over his real estate deals.
With the loan now approved Tulare Local Healthcare District will seek bankruptcy court approval in coming days to finalize the paperwork for the $9 million under terms agreed to.
Part of the money will be used for $3 million in working capital for the hospital and pay off some legal bills including $1.8 million in the HCCA settlement. According to the city staff report, the loan monies will be used to pay expenses.
The District will be receiving $2,335,000 in annual lease from Adventist Health, once Adventist Health takes over the operation from the District. This is anticipated to happen on February 1, 2019. According to their lease agreement with Adventist Health, the first six months of the lease payment will be used to repay Adventist Health on a loan given to the District to get the hospital building to meet state requirements to open. The next 12 months of lease payment, the District will only receive half of the lease payment with the other half going toward to the loan repayment. It will take 18 months into the lease agreement before the District will get the full lease payment. The District will also be selling equipment to Adventist Health for around $6,000,000 that will also be applied to the loan from Adventist Health. Besides the lease payment from Adventist Health, the District receives around $600,000 in rent from other buildings they lease out and around $1,800,000 in property taxes annually after bond payments. The line of credit is needed to cover operational, insurance, bankruptcy and planning cost.
The City currently has approximately $119 million of unrestricted funds in its portfolio but also has around $270,608,000 in bonds outstanding and other loans of around $6,210,000, with payments around $10.1 million per year. The portfolio is used for cash flow and making bonds payments. The portfolio includes all city funds and not just general fund cash.
The District request is for $9 million in the form of a line of credit, at 6% interest for a five-year repayment period. Interest only payments are required for the first thirty-six (36) months. Thereafter, if not repaid, principal payments, along with interest payments begin. In months 37-60, the line of credit is closed, and the outstanding balance is paid off equally during those months. There is no balloon payment at the end of the loan.
To secure the loan, the City will have first deeds of trust placed on all available District properties, excluding the hospital itself. Appraisals have placed a value of approximately $14 million on those properties. The Bankruptcy Court will be required to approve the credit line as the City will be placed ahead of existing creditors as to the properties, and the paperwork seeking approval from the Court has already been filed by the District’s Bankruptcy lawyer.
In addition to interest, the District will pay a $50,000 origination fee, and all costs including attorney and staff time incurred up to the close of escrow.
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