Altru to issue $115 million in bonds for clinic replacement, refinancing debt

May 20--Altru Health System wants to issue $115 million in bonds, some of which will go toward replacing the Main Clinic closed months ago because of a structural failure.

The Grand Forks health care provider will issue bonds financed by investors and pay back the debt with interest. On Monday, the Grand Forks City Council approved the resolution authorizing the issuance of the revenue bonds, with a public hearing set for 5:30 p.m. June 19.

To qualify for tax exemption status, Altru must sell its bonds through the city, Grand Forks Director of Finance Maureen Storstad said. However, the city will not take on the debt for the loan and is only a facilitator of issuing the bonds.

"It cannot come back to the city," she said when asked what would happen if Altru cannot pay off the bonds.

The bonds would go on the market in the second half of June, with the interest rate to be decided then, Altru spokeswoman Angie Laxdal said.

The timelines to pay the bonds back would range from several years to 30 years, Chief Financial Officer Dwight Thompson said.

About $40 million would go toward replacing Altru's Main Clinic at 1000 S. Columbia Road. Altru engineers determined the 110,000-square-foot facility needs to be replaced after they found structural problems, which caused a wall to sag when a beam failed in the center of the lower level of the clinic in December. The clinic's 100 staffers, along with an estimated 100 patients, were told to evacuate the building, with employees eventually being relocated to other facilities.

The rest of the bond issue--$75 million--will be used to refinance existing Altru debt at a lower interest rate, Thompson said. Refinancing would save the hospital about $500,000 a year in interest expenses, he estimated.

The hospital has about $200 million in reserves as of Wednesday, Laxdal said in an email.

"This equates to 137 days cash on hand," Laxdal wrote. "We seek to maintain a days cash on hand of around 145 days, which is our year-end target."

Thompson said Altru's financial status is "very strong." Fitch Ratings, a credit agency, gave Altru an A- in March 2016, and Moody's has said the health system's finances are stable.

Thompson said he didn't expect health care costs for Altru customers to go up because the health system's move to issue bonds for the clinic replacement project and refinancing.

What's next

It's not the first time Altru has issued bonds. The health system announced in 2012 it planned to do the same for expansion plans, purchasing buildings at the Aurora Medical Park in south Grand Forks and refinancing old debt.

"We see this as pretty routine financing," Thompson said.

Executives are investigating whether the clinic will be a standalone facility or an expansion to the hospital's main building, Thompson said. Altru's insurers also are determining how much of the clinic will be covered, he added.

"The coverage won't cover any material replacement costs," he said. "It'll be relatively small compared to the project."

Altru is in the design phases of deciding how to replace the clinic. It's uncertain when the project would begin--that depends on when the health system can issue the bonds.

Altru would re-evaluate its financial options and delay the project until it secures the funding from bonds, he added.

"We don't anticipate a problem," Thompson said.

He said the staff who had to leave the clinic have handled the move well, adding spirits are upbeat.

"It's a little unsettling when you change workplaces, but it was the most awesome experience," he said. "People went back to work that afternoon."

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