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HomeMy WebLinkAboutAgenda Report - June 20, 1990 (77)CO U N C I L C 0 M M U N I C A T 1 0 N TQ THE CITY COUNCIL COUNCIL MEETING DATE FFCM THE CITY MANAGER'S OFFICE JUNE 20, 1990 SUBJECT CONSIDERATION OF PFCFCSAL TO REFINANCE LODI MEMORIAL HOSPITAL BONDS AND RELEASE OF CITY'S INTEREST THEREIN PREPARED BY: City Attorney RECOMMENDED PCTAON = Consideration of proposal to reffnance Lodi Memorial Hospital bonds and release of City's interest therein. BACKGROUND INFORMATION: As explained in the attached letter from bond counsel John R Myers with the firm of Orrick, Herrington & Sutcliff, the City of Lodi i n 1979 lent i t s status as a municipal corporation to the Hospital for the purpose of issuing certain revenue bonds with which the emergency care wing was built. The City was i n no way a participant i n this bond issue, and i s not responsible for either the principal or interest on these bonds. It was simply necessary under Internal Revenue Service rules for a public agency to "sponsor" such bonds. Lodi Memorial Hospital i s now attempting to refinance these bonds with a private issue for the purposes of doing further construction and the possible acquisition of Doctors' Hospital (although that i s not a certainty at this time). This requires the City's approval, since under the original bond issue, it was stipulated that the City would hold title to the emergency room facilities upon maturity of the bonds in the year 2020. However, it was apparently never contemplated that the City would actually take over operation of this portion of the Hospital, nor that %Ae ever fntended to actually become involved i n the running of the facility. This was a mere formality, and the City is not giving up anything of value by authorizing this transaction. n effect, the attached Acquisition Agreement and Resolution operate as a Quitclaim deed, simply conveying back to the Hospital any and a I I right or title the City might have had to the facilities upon the maturity of the bonds. It is rry understanding that bond counsel John Meyers will be present at the Council meeting of June 20, 1990 to answer any further questions the Council mar have. Respectfully submitted, VJ BOB MCNATT City Attorney BM:vc cc: City Manager City Clerk ERRICK, HERRINGTON & SUTCLIFFE Daunt Dial 916/329-7903 May 25. 1990 City Council City of Lodi 22Z West Pine Street Lodi, California 95241-1910 Re: Lodi Memorial Hospital Ladies and Gentlemen: V* served as bond counsel in 1979 in connection with the issuance of revenue bonds (the "1979 Bonds") by Lodi Memorial Hospital to finance its improvement and expansion program. In order to borrow funds at the lowest possible rates, the Hospital requested the City to sponsor the issuance of the bonds under the provisions of Revenue Ruling Pb. 63-20 of the Internal Revenue Service. Through this sponsorship, the City enabled the Hospital to borrow at tax-exempt rates, although the City had no legal or moral responsibility to pay debt service on the 1979 Bonds. In 1979, no other method existed for the Hospital to obtain the advantage of these lower rates (although a state agency, the California Health Facilities Financing Authority, has since been formed and given this power). The Hospital has now determined to refund the 1979 Bonds, primarily to remove restrictive covenants contained in the bond documents. The financing will be through the California Health Facilities Financing Authority, and will include the financing of the purchase pricQ of Doctor's Hospital of Lodi (if the Hospital is the successful bidder) and certain equipment acquisitions at the Hospital. The City will not be involved in this financing. Due to a requirement in Revenue Ruling Db. 63-20, however, upon the refunding title to the portion of the Hospital's facilities that were financed with the proceeds of the 1979 Bonds will be automatically transferred to the City. But for the refunding, this title transfer would not occur until the 1979 Bonds were retired. The Hospital is requesting the City to approve the transfer of the City's interest in the health facilities to the California Health Facilities Financing Authority, which will then lease the health facilities to the Hospital and rely on the lease payments to pay debt service on the new bonds. (Obviously, without this transfer it will be very difficult for the Hospital 555 Capitol Mall • Saccamcntr California 95814 Tclephone 916447 9200 • Facsim..e 916 447 7791 5766m San Francisca 415 392 1122 • Los Angclrs 213 680 7000 • New York 212 326 8800 5766m RESOLUTION NO. 90-103 A F1NCLtJM4 OF THE LSI CITY OJ NCL THE EXBaJM T AND DELIVERY OF AN ACQLRSMON AGREEMENT 4I I TH THE CALIEUM HEALTH FACILITIES FNANCW ACTH-UMY AND CERTAIN OTHER N dlq'TIJN VAI THE TRANSFER OF TITLE TO LSI NBVIIAL FURT AL sssasaaaaasaaaxxxxxaxxxaaaaaaaxxxaxas=xaxxxsaaxx: VIAS; Lodi Memorial Hospital (the "Hospital")previously issued $8,000,000 aggregate principal amount of its revenue bonds (the "Bonds") for the purpose of financing certain improvements and additions to the Hospital's facilities; and WHEREAS, in order for interest on the bonds to be exempt from federal income taxation, the City served as the sponsor of the Bonds in accordance with Revenue Ruling No. 63-20, although the City was not obligated to pay the principal of or interest on the Bonds; and VIAS; the Hospital now intends to refund the Bonds and, i n connection therewith, title to a portion of the Hospital's facilities will be transferred to the City in accordance with Revenue Ruling No. 63-20; and WHEREAS, the Hospital has requested the City to transfer title to such facilities to the California Health Facilities Financing Authority i n order t o a s s i s t i n the refunding o f the Bonds; NOW, THEREFORE, BE IT RESOLVED BY THE LODI CITY COUNCIL, as follows: Section 1. The City Manager or his designee is hereby directed, for and on behalf of the City, to take such action as may be required to convey title to any facilities received from the Hospital in connection with the refunding of the Bonds to the California Health Eaci lities Financing Authority, including, without limitation, execution of a quitclaim deed and bill of sale and execution of an acquisition agreement with the Authority in substantially the form attached hereto as Exhibit A. The consideration for such transfer shall be equal to the amount necessary to cause the Bonds to be refunded, such amount to be applied to the refunding of the Bonds. Section 2. The City Manager or his designee are authorized to execute any and all documents and to take any and all action which may be necessary to effectuate the purposes of this resolution. Dated: June 20, 1990 And fe e M. , Perri n Deputy City Clerk t k 1 I hereby certify that Resolution No. 90-103 was passed and. in a regular meeting 'held `Jme_209*. adapted by the nodi City, Council 1990 by the foilowing votes ; W' Ayes Council Members.- Hinchman, Olson, Pinkerton, Reid and Snider {Mayor). Noes: Council Members - None . .S .;. `"Absent:Council" Members-` . tJone r And fe e M. , Perri n Deputy City Clerk t 1 t 90-103 RES90103/TXTA.02J ACQUISITION AGREEMENT W I TNESS ETH: WHEREAS, Lalli Memorial Hospital (the "Hospital") previously issued $8,000,000 aggregate principal amount of its revenue Bonds (the "Prior i Bonds") for the purpose of financing certain improvements and additions to the Hospital's facilities; and WHEREAS, pursuant to the teens of the Prior Bonds, the City has the option to acquire title to the health facilities financed with the proceeds of the Prior Bonds (the "Health Facilities") upon payment of an option price equal to the amount necessary to ref„ -.d the Prior Bonds; and WHEREAS, the Authority has authorized the issuance of its Hospital Revenue Bonds (todi Memorial Hospital) , Series 1990A {the "Bonds"), for the purpose, among other things, of providing funds to acquire the Health Facilities from the City following the exercise of the City's option; and WHEREAS, the City has determined to sell the Health Facilities to the Authority; and VY HAAS the Authority has determined to purchase t,hel Health i Facilities from the City: and lease such facil i ties 'to the .Hospital pursuant to a Lease Agreement, dated as of 1990 (the please`_ Agreement"), by and between the Authority and the Hospital; NOW, THEREFORE, IN OF THE PREMISES AND OF THE MUTUAL PIIEV4NIS AND COVENANTS CCNrAND HERE T AND FOR OTHER GOOD AND VALUABLE OJNNE RAA CK THE PARTIES HERETO AGREE AS FOLLOWS: Section 1. Acquisition of Facilities. The City hereby agrees to sell to the Authority, and the Authority hereby agrees to buy firm the City, all right, title and interest of the City in and to the Health Facilities, as set forth in Exhibit A hereto. The City shall execute and deliver a quitclaim deed conveying title to the real property portion of the Health Facilities and a bill of sale conveying the personal property portion of the Health Facilities to the Authority on the date of issuance o f the Bonds. Section 2. Acquisition Price. In consideration of the purchase by the Authority of the Health Facilities from the City, the Authority hereby agrees to pay a purchase price equal to $ on the date of the issuance of the Bonds, which shall be used by the City to exercise its option to purchase the Health Facilities from the Hospital. -2- Section 6. Severability. If any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. dcs ALIU M- IMC City Clerk Approved As To Form: 909Y W. NATT City Attorney AGRLMH/TXTA.01V -4-