Hospital District looks to federal loan to finance Granby facility
Facing a motion for receivership, the Kremmling Memorial Hospital District is seeking a federal loan to purchase the leasehold on Middle Park Medical Center – Granby.
The loan, which has a lower interest rate than the district’s current payments, would give the district significant financial relief as it tries to pay off its newest facility.
“Don’t take this the wrong way, we’re still going to owe money on that project,” said Brendan Gale, KMHD’s CFO at a May 28 hearing. “We’re borrowing cheaper money is what we’re doing,”
The district currently leases the building from Middle Park Medical Facilities Corporation, a nonprofit established for the construction of MPMC-Granby, which lies outside of the district’s boundaries.
In 2010, the corporation issued $21.7 million in certificates of participation to finance the facility’s construction.
Certificates of participation allow investors to purchase shares of lease revenues from a project.
The district ran into trouble in 2013 when it couldn’t make base rental payments on the lease, forcing the certificates’ trustee to draw more than $930,000 from its reserve fund to make the payment.
When the district failed to replenish the fund, it defaulted on the certificates’ covenants.
A November 2014 notice from U.S. Bank, the certificates’ trustee, stated that additional draws had been made from the reserve fund since the 2013 default, and the amount of money in the reserve fund was below what has required by the certificates’ covenants.
The notice listed additional events of default as well.
Things came to a head in March when U.S. Bank filed a motion to appoint a receiver of all of the district’s facilities.
The district has filed for a motion to extend the hearing.
Negotiations between the district and trustee haven’t been going well, said KMHD Board Member Jeff Miller.
“I believe they’re trying to bully us,” Miller said. “They do have a lot of control, but we want to continue to have health care here, so we want to meet in the middle.”
Now, the district plans to apply for a U.S. Department of Agriculture Rural Development loan to purchase the leasehold on the building.
As part of the loan process, KMHD held a public hearing on the loan after its May 28 meeting.
“This is a very, very possible scenario for us,” Gale said.
The 35-year loan would be based on an appraisal of the district’s properties and business at all of its facilities, Gale said.
“The best situation is that it will appraise at what we currently owe on the certificates, which is around $20 million to $22 million,” he said.
The interest on the loan payments would be about half of what the district pays on its base rental payments, Gale said.
Miller said the district could save around $500,000 per year.
So far, the USDA seems willing to help, Gale said.
“While we don’t have an official approval of this, we’ve seen signs in the communication with the USDA that they want to help us,” Gale said. “They want to be part of the solution for health care in our communities.”
However, Kremmling resident David Hammer said he thought the bondholders were getting off too easy.
“It’s just very frustrating to see the participants of ownership, which is what they are legally, getting out with whole dollars, and I keep hearing that that’s what’s going to occur, and that’s good enough because the interest rate is so good,” Hammer said.
KMHD CEO David Ross said the entire process had been “frustrating.”
“Frankly, the bondholders and their representatives have been extremely unwilling to participate in any discussions,” Ross said.
He added that pursuing the USDA was “the best option for us by far.”
The district hopes to have the appraisal completed by the second week in July, Gale said.
The district must complete and submit its application by Aug. 30.
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