Here are the essential facts on the Hospital's debt
December 15, 2010
As most people in Beaufort County realize, the Hospital Board is considering several proposals related to the Hospital. Two of those proposals involve the real estate. The University Health Systems of Eastern Carolina's (UHS) original proposal called for an upfront lease payment of $18 million with a 20-year lease at the end of which the real estate and attached capital improvements would become the property of UHS. The original proposal from Community Health Systems (CHS) provided for an upfront lease payment of $30 million and a 30 year lease with the option to renew at "fair market value" with the real estate and improvements continuing to belong to Beaufort County.
Both proposals provide that while each bidder would take over the current assets and liabilities the County would continue to be responsible for the outstanding long-term debt.
Two of the proposals are essentially management agreements which would provide for the bidder to operate the health system for a percentage fee but the real estate, improvements, current liabilities and assets would remain the Hospital authority's or the County.
Thus, the outstanding and any future debt will be a major issue in whatever choice the County makes, including a choice to continue to operate the Hospital.
The Observer is aware that there are many rumors going around. One of the most persistent rumor is that the County, or some county commissioners, are intent on "making money" on the deal, and one of the most prolific rumors is that the county would use the money from the Hospital to build a jail, or other projects.
So we thought we should review the county's liability regardless of which proposal it accepts or if it continues to operate the hospital.
County Manager Paul Spruill was kind enough to provide us with an Excel spreadsheet that shows the Hospital debt held by the County. Click here to download the spreadsheet.
In reading the spreadsheet one must realize that it covers several bonds or notes. But the important thing is the total owed and the annual debt service (payments).
To pay off the outstanding long-term Hospital debt the County would have to receive $18.84 million. This does not include the County's other debt, such as the outstanding school bonds. If the County chose not to pay the Hospital bonds off, but to continue to finance all of them, it would cost $2,555,005.69 in debt service in 2011 with a declining balance owed each year through 2025, when the outstanding debt would be $334,880 in the final year.
These numbers do not include the arrears the Hospital now owes the County.
We would suggest that the basic difference between the original bids from UHS and CHS was additional $12 million CHS would have paid up-front and under their bid the County would have retained the real estate and improvements. But we will predict now that this difference will become irrelevant.
The difference of $12 million is astounding, from a strictly numbers perspective. It appears that UHS's original bid was: "we'll take the Hospital off your hands and pay off your debt." The classic "distress sale."
UHS surely has to understand that it is a no-brainer that UHS's bid would be rejected over CHS's.
So we will predict here and now that from the negotiations will come a significantly better UHS bid. And we'll leave it to others to comment on what the UHS Crusaders (those who said…"go with UHS now!") will have to say then about the commissioners and board members who said "let the process work."
But we'll also predict now that both the UHS bid and the CHS bid were unreasonably low in comparison to the fair market value of the assets and it remains to be seen how that will come out in the revised bids.