Family Health West

sims underwrites financing for a critical access hospital system in colorado

Sims served as co-manager for the $28,000,000 financing of a replacement critical access hospital facility for the Lower Valley Hospital Association (LVHA) d/b/a Family Health West, located in Fruita, Colorado. This transaction presented unusual challenges for bond marketing, due to the market’s general unfamiliarity with the critical access hospital concept and the fact that the LVHA organization includes senior living and outpatient components in addition to the hospital; Sims was asked to participate due to its established ability to market senior living and healthcare bonds to both retail and institutional investors.

Rendering of the Replacement Hospital Facility - Fruita, CO

Critical Access Hospitals (“CAH”) are providers recognized by the Federal Centers for Medicare and Medicaid Services as providing acute care and related services to areas of lower population that would generally not support a full-service urban hospital; the designation provides for 101% cost-based reimbursement for actual allowable costs for inpatient and outpatient services for Medicare beneficiaries (as opposed to the DRG reimbursement formula used by other providers). Opened in 1949, the LVHA hospital was designated a CAH in April 2002. In recent years, the area surrounding the hospital has experienced substantial population and economic growth, due primarily to expansion of oil and gas exploration and development activities.

LVHA currently includes the 10-bed existing hospital, a recently-developed outpatient clinic, imaging center and rehabilitation therapy and fitness center, as well as a 90-bed assisted living facility, a 26-bed memory care complex and a 120-bed skilled nursing facility. The hospital currently provides emergency services, swing beds, outpatient, laboratory and imaging services.

Uses of proceeds of the offering included primarily the construction of a 15-bed replacement hospital facility that will allow LVHA to provide state-of-the-art surgical, acute care and emergency care services, attract additional physician relationships, provide support to its outpatient and senior living operations and generally improve the quality of medical care to the rapidly growing western Colorado area. Other uses of proceeds include improvements to and upgrading of the senior living facilities in order to comply with modern standards and to improve the quality of life for the residents.

The LVHA financing was the first sizeable non-rated financing of the year and demonstrated Sims’ strength in marketing high-yield non-rated bonds. The challenge to bond marketing resulted from the unique makeup of the LVHA organization. The underwriters would have to educate traditional purchasers of senior living bonds about acute care providers and the CAH concept, as well as to educate purchasers of hospital bonds about senior living. Throughout the underwriting process, Sims worked to establish credit and underwriting criteria that would maximize the credit strength of the financing, consistent with the standards required by its traditional retail and institutional purchasers of senior living bonds. Sims provided extensive contact and follow-up with retail and institutional investors in order to develop an understanding and comfort level with the transaction, with the result that Sims sold 78% of the financing to its high net worth retail investors and institutional clients.