Happy Memorial Day! We hope you have a Great Holiday…
So…here goes…today’s Memorial Day Edition of the Monday Muni Minutes!
Enjoy and have a great week! Deb
CURRENT EVENTS
Happy Memorial Day! Our Deepest Thanks to Those Who Served…
As many of us relax today with a much-anticipated day off, do you know the history behind Memorial Day? It started as a way to honor those who died in the Civil War – and was originally called 
Decoration Day.
Over the last 100 years, we have been through two World Wars, Korea, Vietnam, and others as well as losing thousands in Iraq, Iran and Afghanistan in the last decade alone.
While today may be filled with BBQs, time on the water, gatherings with lots of laughter and cheer, I pray you will take a moment to honor our veterans who made the ultimate sacrifice for our freedoms:
As beautifully shared by Walter R Bomeman in his historical article today:
“On this Memorial Day, we honor the sacrifices of prior generations. We honor the sacrifices of the men and women next door who have served or continue to serve our country. And we pledge never to forget the true meaning of Memorial Day. We would not have the privilege of celebrating this day and honoring so many memories without the sacrifices of those who gave their last full measure of devotion.”
El Paso Children’s Hospital Files Chapter 11
In the largest Texas public facility bankruptcy in years, El Paso Children’s Hospital filed for protection on May 19th, after talks with University Medical Center fell through. The filing came less than a day after an impasse on Children’s $49.3 million in debt owed to UMC.
So…what circumstances caused this to happen?
Well, it depends on which side you are listening to…
UMC’s view: “UMC has made exhaustive efforts to reach an agreement with EPCH that is consistent with the UMC Board’s responsibility to ensure access to quality healthcare to all residents of El Paso County and prudently oversee UMC financial interests,” said, Steve DeGroat, UMC Board of Managers. “We must be prudent and ensure the interests of UMC and El Paso’s taxpayers are protected.”
DeGroat also stated, “For over a year now, UMC has continued to provide services to EPCH that are necessary to keep EPCH open. UMC cannot continue to provide this subsidy indefinitely.”
But there are more interesting details…
Interestingly enough, El Paso Children’s Hospital has only been open since 2012 – that is a pretty short time to go from opening to bankruptcy protection. A separately organized non-profit under the El Paso Hospital District, the Children’s Hospital is housed in UMC facilities.
The Hospital District owns and operates UMC. The 394-bed acute care facility has the legal responsibility to care for all county residents – even if they can’t pay. In an area that covers 1058 square miles, that’s a big responsibility.
S&P downgraded El Paso Hospital District from AA-minus to A-plus with a negative outlook in December primarily due to EPCH, noting “The rating action is based on our view of the district’s declining cash levels related to operational pressures tied to the operation of El Paso Children’s Hospital.”
Fitch Ratings analyst said, “Recent public announcements from EPCH regarding a possible bankruptcy filing to avoid a takeover by the University Medical Center highlight a lack of ability to 
resolve organizational differences.”
But there are always two sides to a story…
Children’s Hospital view: “Since that mediation, UMC unilaterally changed the terms and on May 13th submitted a completely different term sheet to EPCH. Unfortunately, the manner in which UMC has navigated the mediation process has been unproductive and not in the best interest of the EPCH.”
EPCH’s CEO Mark Herbers said. “It is our obligation to the residents of El Paso County to protect the independent operation of EPCH and more importantly, our mission, which is to care for the critically ill children in this region.”
The “mudslinging” makes it pretty clear why March’s mediation failed.
We will want to watch how this plays out. The Children’s Hospital is planning to exit Chapter 11 by year’s end.
[Editor’s Note: Without looking more closely at the financials, this filing appears to be a direct combination of financial pressures, organizational differences…and control.]
Muni Names to Know: Key Leadership Changes for SEC and the IRS
The SEC has a new director and deputy director of the SECs Office of Municipal Securities – both are attorneys.
Jessica Kane is the new director.
They also announced that Rebecca Olson will be the new deputy director.
At the IRS, Allyson Belsome is senior field manager for field operations in the IRS’s tax-exempt bond office – returning from her assignment in the exempt organizations division.
[Editor’s Note: There have been a number of changes in both the IRS and SEC lately. We will keep you posted as more leadership transitions happen.]
OUT & ABOUT
IRS Webinar:
QSCBs – Qualified School Construction Bonds
June 18, 2015, 2PM EST Sign up Here.
You will learn rules and requirements, post issuance compliance and resources available for issuers
Conferences:
The Bond Buyer’s Midwest Municipal Market Symposium
June 30, 2015 InterContinental Chicago Magnificent Mile, Chicago, IL
Resources:
Check out the “muni deal of the week”…and look at it from the bondholder’s perspective.
On-Demand Post Issuance Compliance Training for Issuers
“Compliance Basics” – a Free, 3-part video training, plus the Monday Muni Minutes
On-Demand Webinar
Resource: On Demand Replay of Continuing Disclosure after MCDC
Slides: Final Slide Deck for Continuing Disclosure after MCDC
Muni Market Minute Updates
(Quick news bits on topics we’ve covered in earlier MMM editions!)
Take 2 – Chicago & BAML – led Syndicate Bring $800 Million to Market
After a false start and a regroup…Chicago will price this Wednesday.
Following rating agency downgrades which triggered $2.2 billion in termination-eligible events, Chicago and its team of 12 bankers, led by BAML, have merged all of their “moving to fixed-rate” 
deals into one $800 million offering, according to its official statement released last week.
The planned pricing last week was pulled so the City could negotiate forbearance agreements with its support banks until AFTER the closing dates of their bond deals.
They also expanded their credit lines in the process…
According to the offering documents, “The forbearance agreements are intended to enable the city to complete the conversion of all its outstanding general obligation variable rate to fixed-rate bonds, to terminate in an orderly fashion the letter of credit agreements and remaining interest rate swaps associated with those general obligation variable rate bonds and to continue the short term borrowing program.”
Combining the deals created a few challenges.
To start, the senior book-runner, Bank of America needed to get approval when all the deals were combined.
“A smart move,” said one market source – “The city wants to come into the market in a better position to set a bottom line on prices and not just get stuck with the lowest price that clears the market. To do that, you need the bookrunners to be willing to take down the bonds.”
The city made $139.5 million in termination payments in May based on the negative MTM on their 2002, 2003, 2005 and 2007 bonds being reoffered. There is another $60 million in negative value tied to five more 2005 bonds still outstanding.
[Editor’s Note: We will watch with interest as the pricing occurs this week – I will likely post something in the LinkedIn group once word is out on the pricing results.]
Scraps for Pension Bondholders in San Bernardino – A Penny on the Dollar
As the city makes its final move in Chapter 9, the holders of $56 million in pension obligation bonds are going to bear the brunt of the blow – to the tune of a 1% recovery on their investment.
Penny Stocks are one thing….Penny Bonds a whole different story.
“We were ready to go over a cliff,” City attorney Gary Saenz said, “The situation was bleak and it is still very bleak.”
Attorneys for the bondholders and the insurer argue they are owed far more…citing that Detroit’s bondholders got 14%, plus land and other assets – along with development deals.
So, will this slap in the face (and wallet) impact San Bernardino’s ability to borrow?
Some credit analysts believe the decision to sacrifice bondholder investments in bankruptcy will directly impair their ability to access the markets in the future. What will this mean for future pension bonds – or roads or other infrastructure needs?
The city does not think they will be impaired for future borrowings…
Saenz said, “We believe our ability to access the market will depend on the ability to repay at whatever time we are trying to access and based on our credit rating. That is what determines the ability to pay it back.” He also said, “If we are successful at eliminating this in bankruptcy, our ability to pay back new loans would probably be enhanced.”
Really? What do you think?
There’s also no more fire department. Right now, the city is seeking service providers for provide fire services and is still trying to reach agreement on its police force.
The city will submit its plan of adjustment for the Chapter 9 on May 30th.
[Editor’s Note: Pension obligations keep rearing their ugly…and expensive heads. I, for one, think that San Bernardino will find its ability to borrow a – how shall we say – uphill battle going forward.]
We hope you found this week’s Memorial Day edition of the Monday Muni Minutes valuable and informative.
Chat soon!
As always, your comments are welcome…scroll down and let us know what you think about any of the articles!
To your compliance success,
Debbie
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