NJ Healthcare Facilities Financing Authority MRMC - JFK Hospital Bond Issues

NJ Healthcare Facilities Financing Authority MRMC - JFK Hospital Bond Issues


October 30, 2010

RE: Muhlenberg Regional Medical Center Property

Plainfield, New Jersey

A recent newspaper article (enclosed) detailed vague discussions concerning the development of the Muhlenberg Regional Medical Center property located in Plainfield, NJ.

Since the State of New Jersey holds the $152,925,000 State Contract Bonds (Hospital Asset Transformation Program) on the total Muhlenberg property issued by the New Jersey Health Care Facilities Financing Authority with the Bank of New York Mellon, as Master Trustee, the State of New Jersey should be an interested party and participate in the ongoing discussions in order to fully protect the public interest.


Muhlenberg Regional Medical Center was closed in 2008, by the former Commissioner of Health and Senior Services Heather Howard. (July 29, 2008, closure letter)


The New Jersey State Legislature passed a bill to allow for the bonding to go through even though the court challenge was not adjudicated. In October, 2008, the New Jersey Health Care Facilities Financing Authority approved the $152,925,000 State Contract Bonds in the Hospital Asset Transformation Program.

According to papers filed in the County of Union Clerk's office, the $152.9 million bond note is secured by the Muhlenberg property only and does not impact The Community Hospital Group, Inc. [Please note that at one of the hospital annual meetings, it was stated that there is also a $17 million mortgage on the Muhlenberg property, but research can not substantiate that as a fact.]

The Plainfield area residents lost healthcare for a supposedly $18 million loss, but the Muhlenberg assets have been leveraged to provide $152.9 million to another entity.

Regardless, the State of New Jersey needs to be aware of this development in order to protect the State's interest.

[updated 07/04/2011]

A search as of yet has not been done of the papers filed in the County of Middlesex; however,
acording to the NJHCFFA (NJ Health Care Facilities Financing Authority) October 23, 2008 Meeting Minutes, page 6,

"The proceeds of the financing will be used to : refund the the Authority's Variable Rate Composite Program - JFK Medical Center Project Series 2005 A-3; refund the Authority's Variable Rate Composite Program - Community Hospital Group Series 2003 A-1; refund the Authority's Muhlenberg Regional Medical Center Issue, Series 2000; refund the Authority's JFK Medical Center/Hartwyck at Oak Tree Obligated Group Issue, Series 1998; refund the Authority's JFK Health Systems Obligated Group Issue, Series 1995: refund the Authoriity's JFK Health Systems Obligated Group Issue, Series 1993; fund capital improvements at the JFK Medical Center related to the closure of Muhlenberg; fund capital interest; and pay related costs of issuance."

The $152.9 million was leveraged to refund 5 JFK related bonds and only 1 of Muhlenberg bonds.

Minutes of the New Jersey Health Care Facilities Financing Authority meeting held on October 23, 2008 on the fourth floor of Building #4, Station Plaza, 22 South Clinton Avenue, Trenton, New Jersey.

NJHCFFA October 23, 2008 Meeting Minutes p. 6

B. JFK Medical Center Obligated Group

Mr. Escher stated that the following portion of the meeting will be considered a public hearing in connection with the proposed issuance of bonds on behalf of JFK Medical Center Obligated Group. This hearing took place in accordance with the public notice and approval requirements of Section 147(f) of the Internal Revenue Code of 1986, as amended.

As a public hearing, Mr. Escher welcomed everyone to participate in the discussion, but first asked Mark Hopkins and Bill McLaughlin to bring the Members up to date on the transaction.

Mr. Hopkins took the opportunity to provide a brief background of the purpose of the TEFRA Hearing, the specific financing program, and the Authority’s action at this meeting. He stated that the Authority will consider authorizing, with certain contingencies, a financing for three borrowers: The Community Hospital Group, Inc. which does business as JFK Medical Center, Hartwyck at Oak Tree, Inc., and Muhlenberg Regional Medical Center. These borrowers will be referred to going forward as the JFK Medical Center Obligated Group. He also noted that reference may be made to Solaris Health System, which is the borrower’s corporate parent.

The financing that is being considered for the JFK Medical Center Obligated Group is a type of financing authorized by the State’s Hospital Asset Transformation Program (“HATP”), which is part of the Authority’s enabling legislation, and which permits the State to pay principal and interest on the bonds, subject to appropriation, if certain criteria are met. It should be noted that the JFK Medical Center Obligated Group will be required, under a loan agreement (secured by a mortgage), to pay an amount equal to the principal and interest on the bonds to the Authority. The Authority will then pass those payments on to the State Treasurer, making the transaction revenue neutral to the State.

The HATP was established in 2000 after it became clear that the state had several over-bedded areas that negatively impact the financial operations of the other hospitals in the area. A 1999 State Commission recommended that the closure of one or more hospitals may strengthen the healthcare delivery system as a whole. Therefore, one of the criteria to use the program is the closure of acute care services at a specific location. The State-backing was recommended as a result of the recognition that the stranded indebtedness of the closed hospital may cause undue financial distress to surviving hospitals in its system.

While the Authority is empowered to issue bonds under the HATP, it is not involved in making the decision on whether or not a hospital can close its acute care services. That decision is made at the Department of Health and Senior Services through the Certificate of Need process. In this case, the Commissioner has approved the Certificate of Need Request to close acute care services at Muhlenberg Regional Medical Center with numerous conditions that must be met by the JFK Medical Center Obligated Group and the Solaris Health System.

Under the Internal Revenue Code, a public hearing is required when tax exempt bonds are issued to benefit non-governmental entities. As such, the Authority is conducting this hearing to provide an opportunity for the public to comment on the proposed issuance of tax-exempt bonds for this project.

Bill McLaughlin then introduced Richard Smith – Senior Vice President and Chief Financial Officer from JFK Medical Center Obligated Group (“JFK”).

He stated that staff has been working on a financing for the benefit of JFK under the HATP. The elimination of acute-care services at the Muhlenberg Regional Medical Center (“Muhlenberg”) meets the eligibility requirements for using the Program. The Treasurer has approved entering into a contract with the Authority, which will provide the security for a bond issue approximating $169 million. JFK will enter into a loan agreement with the Authority, which provides the covenants under which JFK agrees to pay the debt service on the bonds.

He noted that a request for a Certificate of Need to terminate acute-care services at Muhlenberg was filed and a Certificate of Need was granted for the closure on July 29, 2008.

The proceeds of the financing will be used to: refund the Authority’s Variable Rate Composite Program - JFK Medical Center Project Series 2005 A-3; refund the Authority’s Variable Rate Composite Program – Community Hospital Group Series 2003 A-1; refund the Authority’s Muhlenberg Regional Medical Center Issue, Series 2000; refund the Authority’s JFK Medical Center/Hartwyck at Oak Tree Obligated Group Issue, Series 1998; refund the Authority’s JFK Health Systems Obligated Group Issue, Series 1995; refund the Authority’s JFK Health Systems Obligated Group Issue, Series 1993; fund capital improvements at the JFK Medical Center related to the closure of Muhlenberg; fund capitalized interest; and pay related costs of issuance.

Given that the working group worked to finalize documents over the past week, the documents provided in the mailing package to the Members had been adjusted. Specifically, the Bond Resolution has been updated to reflect the following changes:

Specific authorization for staff to solicit and purchase advertising to support this transaction, if necessary;

Contingencies related to interest rates and underwriter discount;

Expanded redemption provisions that include a “make whole” premium; and,

(added by Mr. Hancock) Additional limitations on the disbursement of funds related to the new money proceeds.

He then asked bond counsel to present the Bond Resolution.

NJHCFFA October 23, 2008 Meeting Minutes p. 7