Bail-out Bonds: How to Finance A Hospital

It wasn’t easy, but Doctors Hospital Foundation finally found a way to finance its new 180 bed hospital, located near Garland Road and Buckner Boulevard. For the past several years the foundation’s chairman, Dr. Bob Smith, had gone from one insurance company to another seeking mortgage money, but was turned down every time. Federal grants and loans dried up, and the Dallas fund raising market was being squeezed by the big church hospitals. All the while, costs of Doctors’ proposed hospital climbed higher and higher.

“Then one day I heard something about a way to issue tax-free bonds if a city helped,” Smith said. He checked with an underwriter who by chance had just researched the matter, and turned out to be right. Last July 23 Doctors became one of the few private hospitals in the nation able to issue revenue bonds which pay tax-free interest. The Internal Revenue Service gave the exemption because Doctors has agreed to give the new hospital, which eventually will have 300 beds, to the City of Dallas in the year 2005. That’s when the last bonds will be paid off. The city may operate the hospital, sell it or let Doctors keep it.

The bonds received an”A” rating from both Standard & Poor’s and Moody’s.They sold out so quicklythat when Dr. Smith triedto buy a few himself, he wastoo late. By the time ofgroundbreaking ceremonies,September 10, Doctors hadits $10.8 million cash in theFirst National Bank, drawing interest.