Investment and mortgage banking firm Lancaster Pollard, headquartered in
Box Butte broke ground on the renovation and expansion project in 2013, and it is expected to be completed in early 2016. The hospital is adding a 93,000-square-foot addition that includes a 25-bed patient care unit and surgery department. In addition, 17,000 square feet of the existing building will be renovated into a wellness center for rehabilitation and fitness.
Along with providing many upgrades, such as larger patient rooms and an expanded surgical area, the project will help make Box Butte more provider and patient friendly. For example, all of the hospital's radiology services will be consolidated in one location of the building, providing for easier access for physicians and patients.
"It became evident early on that the price of our project was going to be in excess of $40 million and was going to require multiple sources of funding," says Tracy Jatczak, CFO of Box Butte. To help secure funding for the project, Box Butte brought in the help of Lancaster Pollard.
"The beautiful thing about multi-tracking different financing options is that it allows a tailored plan of finance to meet not only the credit profile of the hospital and the capital market conditions but other qualitative priorities that a hospital may have," says Quintin Harris, vice president at Lancaster Pollard and the banker who led this transaction.
Before seeking financing from outside sources, Box Butte had to decide if it was going to provide any of its own funds for the project. "The question as to how much needs to be borrowed for a project begins with how much can the hospital contribute," says Mr. Harris.
Since hospitals contribute capital from their balance sheets before they ever break ground, the balance of debt and equity has to be taken into consideration. "A hospital has to keep the cash reserves on hand to get through whatever operating or marketing challenges may present themselves down the road," says Mr. Harris.
After an analysis of its finances was performed, Box Butte contributed $3.5 million of its own funds to the project. It's credit positive when a hospital can make a contribution. "It shows they have a strong balance sheet and they're invested in the project," says Mr. Harris.
To further fund the project, there were $8 million of general obligation bonds available for Box Butte to issue through the county. In this case, "by having the hospital issue GO bonds rather than revenue bonds it drove down the cost of capital," says Mr. Harris.
"Investors are traditionally more interested in GO bonds than revenue bonds," Mr. Harris says. Therefore, when GO bonds are issued a bigger investor base is being tabbed. "In this case, it was critically important that local investors had an opportunity to buy bonds, and in essence, invest in the project," he says. "In
For the remainder of the funding for the project, Box Butte wanted to pursue a United States Department of Agriculture loan. Lancaster Pollard has significant experience with the USDA direct loan program and was able to assist Box Butte in obtaining two direct loans for the project, totaling $28.75 million.
With the USDA loan secured, Box Butte had to find another source of funding during construction, as the USDA will not provide funding during the construction phase. "We were very pleased with Lancaster Pollard and the speed they were able to secure the funding from the USDA," says Ms. Jatczak.
Construction financing is important because hospitals incur capitalized interest during that time, and that is a direct project cost. To overcome this additional expense, Box Butte chose to issue draw-down bonds for construction funding, which allows the hospital to only pay interest on the debt as it draws on funds for the project. "In this case, the draw-down financing saved the hospital hundreds of thousands of dollars," says Mr. Harris.
"This process ended up being more complex than I ever thought it would be," says Ms. Jatczak. "I feel very proud that we were able to pull together funding of this complexity for the people of our community because I think we are going to have a wonderful facility once the project is complete," she says.
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