HomeMy WebLinkAbout06/03/1997, 1 - REQUEST FROM VISTA HOSPITAL SYSTEMS FOR CONDUIT FINANCING TO ASSIST THEM IN THEIR PURCHASE OF FRENCH HOSPITAL council !1-3�i�q
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C I T Y OF SAN LUIS 0 B I S P O
FROM: Bill Statler,Director of Finance b
SUBJECT: REQUEST FROM VISTA HOSPITAL SYSTEMS
FOR CONDUIT FINANCING TO ASSIST THEM IN
THEIR PURCHASE OF FRENCH HOSPITAL
CAO RECOMAMNDATION
Adopt a resolution authorizing the execution and delivery of documents and actions relating to
an installment purchase and financing sale for Vista Hospital Systems in an amount not to exceed
$60 million.
DISCUSSION
On May 6, 1997, the Council conceptually approved issuing conduit bonds (referred to as
certificates of participation in the attached resolution) on behalf of Vista Hospital Systems to
assist them in their purchase of French Hospital, subject to the following conditions:
■ The City's bond counsel will review the proposed financing documents and provide the
City with written assurance that we are not liable in any way for the repayment of these
bonds.
■ The City's approval of the conduit financing is contingent upon the Federal Trade
Commission's(FTC)approval of the sale of French Hospital to Vista Hospital Systems.
■ Vista Hospital Systems fully reimburses the City for our costs in considering and
processing this request, estimated at $14,000 as follows: $7,500 for review by the City's
bond counsel (Jones Hall Hill & White); and $6,500 for City staff review and report
preparation.
As summarized by the following, each of these conditions has been met, and accordingly,
approval of the attached resolution authorizing the conduit financing on behalf of Vista Hospital
Systems is recommended:
■ Bond counsel review. Attached is a written opinion from Jones Hall Hill & White that
the City is adequately protected from any liability as a result of this financing. As noted
in their letter, their opinion is based on the draft documents they have reviewed to date.
Jones Hall Hill&White will review the final documents to assure that this continues to be
true, and the Director of Finance will not execute the financing documents on behalf of
the City until we have received final approval from them
■ FTC approval. Section 5 of the attached resolution makes it clear that the City's
approval of this financing is contingent upon FTC approval of the sale of French Hospital
Council Agenda Report-Request for Conduit Financing Goin Vista Hospital Systems
Page 2
to Vista Hospital Systems. Again, the Director of Finance will not execute the final
financing documents on behalf of the City until we have received written notice of the
FTC's approval of this sale. It should be noted that FTC approval and the financing are
currently scheduled to be completed by June 19, 1997.
IS Reimbursement of City costs. An advance payment in the amount of $14,000 was
received from Vista Hospital Systems on May 9, 1997.
FISCAL EUPACT
Other than the cost of reviewing and processing the conduit financing request from Vista Hospital
Systems, which they have agreed to fully reimburse, there is no fiscal impact associated with this
approval.
ATTACHMENTS
■ Resolution authorizing the execution and delivery of documents and actions relating to an
installment purchase and financing sale for Vista Hospital Systems
IS Letter from the City's bond counsel (Jones Hall Hill & White) expressing their opinion
that there is no liability to the City in approving this conduit financing
ON FILE IN THE CITY CLERK'S OFFICE
Financing Documents
IS Installment purchase agreement
■ Installment sale agreement
■ Trust agreement
■ Purchase contract
■ Preliminary official statement
H:VisULP=haseAgend&ReporLYune3
RESOLUTION NO.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO AUTHORIZING THE EXECUTION AND DELIVERY OF AN
INSTALLMENT PURCHASE AGREEMENT, AN INSTALLMENT SALE
AGREEMENT, A TRUST AGREEMENT, A PURCHASE CONTRACT, AN
OFFICIAL STATEMENT AND CERTAIN OTHER DOCUMENTS AND
ACTIONS IN CONNECTION THEREWITH RELATING TO AN
INSTALLMENT PURCHASE AND SALE FINANCING FOR VISTA
HOSPITAL SYSTEMS, INC.
WHEREAS, Vista Hospital Systems, Inc. (the "Corporation") has requested the
assistance of the City of San Luis Obispo (the "City") in financing the costs of (i) acquiring,
solely for the purpose of accomplishing the financing, an acute care hospital known as "French
Hospital Medical Center" and certain related health care facilities and properties (collectively,
the "Facilities"), all located within the City, from French Hospital Medical Center ("French"),
which now is (and, upon the consummation of the financing, will remain) the owner and/or
operator of the Facilities, (ii) renovating, remodelling and equipping the Facilities, including
related working capital requirements, (iii) funding a reserve fund for the benefit of the holders
of the Certificates (as hereinafter defined) and (iv) paying certain fees and expenses incurred in
connection with the financing; and
WHEREAS, solely for the purpose of accomplishing the financing, it is proposed that
(i) French, which, immediately prior to the hereinafter described transfer to the Corporation,
will be converted to and become a California nonprofit public benefit corporation, will transfer
the Facilities to the Corporation, (ii) the City will purchase the Facilities from the Corporation
pursuant to an Installment Purchase Agreement (the "Installment Purchase Agreement") between
the City and the Corporation, (iii) the City will sell the Facilities to the Corporation pursuant
to an Installment Sale Agreement (the "Installment Sale Agreement") among the City, the
Corporation and French pursuant to which the City will, at the direction of the Corporation, and
concurrently with the execution and delivery of the Installment Sale Agreement, transfer the title
to the Facilities back to French, and (iv) the City, the Corporation and BNY Western Trust
Company (the "Trustee") will enter into the Trust Agreement (the "Trust Agreement"), pursuant
to which the Trustee will execute and deliver Certificates of Participation (the "Certificates"),
each evidencing an undivided proportionate interest in the Installment Payments (as defined in
the Installment Sale Agreement) to be made by the City pursuant to the Installment Purchase
Agreement; and
WHEREAS, the Installment Purchase Agreement requires the Installment Payments to
be made at such times and in such amounts as will be sufficient to pay the principal or
Prepayment Price (as defined in the Installment Sale Agreement) and interest payable with
respect to the Certificates, but only from the Revenues (as defined in the Installment Sale
Agreement) which consist primarily of the Payments (as defined in the Installment Sale
Agreement) to be made by the.Corporation pursuant to the Installment Sale Agreement; and
WHEREAS, in order to secure their respective obligations under the Trust Agreement,
the Corporation will assign and transfer certain of its rights under the Installment Purchase
Agreement, and the City will assign and transfer certain of its rights under the Installment Sale
Agreement, to the Trustee pursuant to the Trust Agreement; and
WHEREAS, the Corporation and Vista Medical Foundation, Inc. (the "Foundation")
have heretofore established an Obligated Group under (and as defined in) the Amended and
Restated Master Indenture of Trust dated as of February 15, 1996 (the "Master Trust Indenture")
among the Corporation, the Foundation and First Trust of California, National Association, as
master trustee (the "Master Trustee"); and
WHEREAS, concurrently with the execution and delivery of the Installment Sale
Agreement, the Corporation, as Obligated Group Representative, French and the Master Trustee
will enter into the First Supplemental Master Indenture (the "First Supplement"), supplementing
and amending the Master Trust Indenture (the Master Trust-Indenture, as supplemented and
amended by the First Supplement, being hereinafter referred to as,the "Master Indenture"), in
order, among other things, to provide for (i) the admission of French into the Obligated Group
and (ii) the issuance by the Corporation, as Obligated Group Representative, of its Vista Hospital
System, Inc. Obligated Group Obligation, Series 1997A (the "Series 1997 Obligation"); and
WHEREAS, the Corporation will deliver the Series 1997 Obligation to the Trustee
concurrently with the execution and delivery of the Trust Agreement and the Installment Sale
Agreement in order to secure the Corporation's obligation to make Payments under the
Installment Sale Agreement and the payment of any Additional Payments to be made under the
Installment Sale Agreement; and
WHEREAS, a substantial portion of the persons treated at and otherwise utilizing the
health care services provided by the Facilities are residents of the City, and a substantial portion
of the persons employed at the Facilities are residents of the City; and
WHEREAS, the City is authorized under the provisions of Chapter 5 of Part 2 of
Division 3 of Title 4 of the Government Code of the State of California to purchase and sell real
and personal property in the manner contemplated by the Installment Purchase Agreement and
the Installment Sale Agreement for the common benefit and as is necessary or proper for
municipal purposes; and
WHEREAS, pursuant to Section 147(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), in order for the Certificates to qualify as obligations, the interest on
which is excluded from gross income for federal income tax purposes, this City Council, as the.
elected legislative body of the City, is required to approve the issuance of the Certificates after.
a public hearing following reasonable public notice at which hearing interested individuals are
provided the opportunity to express their views, both orally and in writing, on the proposed
execution and delivery of the Certificates and the location and Mature of the Facilities; and
WHEREAS, a Notice of Public Hearing in the form attached hereto as Exhibit A was
published on May 19, 1997 in the San Luis Obispo County Telegram-Tribune, which is a
newspaper of general circulation in the City; and
WHEREAS, in compliance with Section 147(f) of the Code, the Notice of Public
Hearing contains a general, functional description of the Facilities, the street address of the
Facilities and the maximum aggregate principal amount of the Certificates proposed to be issued
and identifies French as the initial owner and/or operator of the Facilities; and
WHEREAS, prior to the adoption of this Resolution, the City Council held a public
hearing in compliance with Section 147(f) of the Code; and
WHEREAS, this City Council has determined that it is appropriate and lawful for the
City to participate in the above-described financing in the manner described in the recitals to this
Resolution;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SAN LUIS OBISPO AS FOLLOWS:
SECTION 1. Findings. By participating in the financing described in the recitals
to this Resolution, the City will provide for the health and welfare of its residents and further
its public purposes by causing essential health care services and facilities to be provided to the
residents of the City.
SECTION 2. Public Approval. This City Council hereby approves the execution
and delivery of the Certificates and incorporates the information contained in the Notice of
Public Hearing attached hereto as Exhibit A as part of its approval, all in accordance with
Section 147(f) of the Code.
SECTION 3. Installment Purchase Agreement. The proposed form of the
Installment Purchase Agreement in the form on file with the City Clerk is hereby approved. The
Director of Finance or his designee is hereby authorized and directed, for and in the name and
on behalf of the City, to execute and deliver the Installment Purchase Agreement in substantially_.
said form, with such other changes therein as such official may require or approve, such
approval to be conclusively evidenced by the execution and delivery thereof.
SECTION 4. Installment Sale Agreement. The proposed form of the
Installment Sale Agreement in the form on file with the City Clerk is hereby approved. The
Director of Finance or his designee is hereby authorized and directed, for and in the name and.
on behalf of the City, to execute and deliver the Installment Sale Agreement in substantially said.
form, with such changes therein as such official may require or approve, such approval to be
conclusively evidenced by the execution and delivery thereof.
SECTION 5. Trust Agreement: Certificates. The proposed form of the Trust
Agreement in the form on file with the City Clerk is hereby approved. The Director of Finance.
or his designee is hereby authorized and directed, for and in the name and on behalf of the City,
to execute and deliver the Trust Agreement in substantially said form, with such changes therein
as such official may require or approve, such approval to be conclusively evidenced by the
execution and delivery thereof. The Trustee is hereby authorized and directed to execute and
deliver the Certificates pursuant to, and in accordance with the terms of, the Trust Agreement
and in substantially the form attached to the Trust Agreement, with such changes as the official
of the City executing the Trust Agreement may require or approve, such approval to be
conclusively evidenced by the execution and delivery thereof; provided that (i) the conditions
set forth in the Purchase Contract (as hereinafter defined) for the purchase of the Certificates by
the Purchaser (as hereinafter defined) shall have been satisfied prior to such execution and
delivery, including receipt of the approval of the Federal Trade Commission, (ii) the aggregate
principal payable with respect to the Certificates shall not exceed $60,000,000, plus the amount
of any original issue discount, (iii) the interest payable with respect to the Certificates shall not
exceed 10% per annum, (iv) the final payment of principal payable with respect to the
Certificates shall occur not later than 33 years after their dated date and (v) the Prepayment
Prices payable upon any optional prepayment of the CertificaTes shall not exceed 105%. The
payment dates, the terms of prepayment and all other terms of the Certificates shall be as
provided in the Trust Agreement and the Certificates, as finally executed.
SECTION 6. Purchase Contract. The proposed form of the Purchase Contract,
including the Letters of Representation attached thereto as Exhibit A and Exhibit B, to be dated
as of the date of its execution and delivery (the "Purchase Contract"), among Cain Brothers &
Company, Incorporated, as the initial purchaser (the "Purchaser") of the Certificates, the City
and the Corporation in the form on file with the City Clerk is hereby approved. The Director
of Finance or his designee is hereby authorized and directed to execute and deliver the Purchase
Contract in substantially said form, with such changes therein as such official may require or
approve, such approval to be conclusively evidenced by the execution and delivery thereof;
provided that the purchase price of the Certificates, excluding any original issue discount, shall
not be less than.98% of the aggregate principal payable with respect to the Certificates, plus
accrued interest from the dated date of the Certificates.
SECTION 7. Preliminary Official Statement,Official Statement. The use and
distribution of the Preliminary Official Statement relating to the Certificates (the "Preliminary
Official Statement") in the form on file with the City Clerk is hereby approved. The Director.
of Finance or his designee is hereby authorized and directed, for and in the name and on behalf
of the City, to execute and deliver the final Official Statement, to be dated as of the date of the
Purchase Contract (the "Official Statement"), in substantially the form of the Preliminary
Official Statement, with such changes as such official may require or approve, such approval
to be conclusively evidenced by the execution and delivery thereof. The Purchaser is hereby
authorized to distribute copies of the Official Statement.
SECTION.8. Other Official Actions. The Director of Finance or his designee
is hereby authorized and directed, jointly and severally, to do any and all things and to execute
and deliver any and all documents that he or she may deem necessary or advisable in order to
carry out, give effect to and comply'with the terms and intent of this Resolution and the
transactions contemplated by this Resolution and by the documents hereinabove authorized,
including without limitation a Blanket Letter of Representations from the City to The Depository
Trust Company, as Securities Depository (as defined in the Installment Sale Agreement) for the
Certificates, and a Non-Arbitrage Certificate relating to the exclusion of the interest components
of the Installment Payments from the gross income of the holders of the Certificates for federal
income tax purposes.
SECTION 9. Effective Date,Duration. This Resolution shall take effect on the
date of its approval and adoption by this City Council. The authorizations and approvals set
forth in this Resolution shall terminate and be of no further force and effect six (6) months after
the date of its adoption by this City Council.
On motion of Council Member , second by Council Member
and on the following call vote, to wit:
Ayes:
Nayes:
Absent:
the foregoing resolution was passed and adopted this 3rd day of June, 1997.
Mayor
ATTEST:
City Clerk
APPROVED AS TO FORM:
Cit me
APPROVED AS TO CONTENT:
City Administrative Officer
EXHIBIT A
to
Resolution of City of San Luis Obispo
NOTICE OF PUBLIC HEARING
Public Notice is hereby given that a public hearing will be held by the City Council of
the City of San Luis Obispo (the "City") on June 3, 1997, at 7:00 p.m., in the City Council
Chambers located at 990 Palm Street, San Luis Obispo, California, with respect to the proposed
execution and delivery of one or more series of Certificates of Participation in an aggregate
principal amount not to exceed $60,000,000 (the "COPS"). The COPS will evidence
proportionate interests of the holders thereof in installment payments to be made by the City to
Vista Hospital Systems, Inc. ("Vista") under an Installment Purchase Agreement pursuant to
which Vista will sell the Facilities (as hereinafter defined) to the City. The proceeds of the sale
of the COPs will be used, together with other available funds, (i) to finance the acquisition of
an acute care hospital and other related health care facilities (the "Facilities") which the City will
sell back to French Hospital Medical Center ("French"), which, on the date of delivery of the
COPS, will be a California nonprofit public benefit corporation, under an Installment Sale
Agreement pursuant to which Vista will make installment payments to the City, (ii) to pay the
costs of renovating, remodeling and equipping the Facilities, (iii) to fund a reserve fund for the
benefit of the holders of the COPS, (iv) to provide working capital and (v) to pay certain
expenses incurred in connection with the delivery of the COPS and the transactions to be
financed thereby.
The Facilities, which will initially be owned or leased by French, are located at the
following addresses, all within the City of San Luis Obispo:
(1) A 124-licensed bed acute care hospital known as "French Hospital Medical
Center" located at 1911 Johnson Avenue;
(2) a parking lot for the hospital located at 1250 Iris Street;
(3) a vacant lot of land located at 1800 Ruth Street;
(4) an urgent care center located at 221 Madonna Road;
(5) a medical office building located at 1941 Johnson Avenue;
(6) a parking lot for the medical office building located at 1943 Johnson..
Avenue; and
(7) a 23-bed transitional care facility located at 1575 Bishop Street.
Neither the installment payments to be made by the City pursuant to the Installment
Purchase Agreement nor the COPs constitute a debt or liability of the City within the meaning
of any constitutional or statutory prohibition. Neither the faith and.credit nor the taxing power
of the State of California or any political subdivision, municipality, agency or instrumentality
thereof, including the City, is pledged to the payment of said installment payments or the COPs.
The obligations of the City to make said installment payments are limited obligations payable
solely from the installment payments to be received by the City from Vista pursuant to the
aforesaid Installment Sale Agreement.
The public hearing is required by Section 147(f) of the Internal Revenue Code of 1986.
Any person interested in the execution and delivery of the COPs or the location and nature of
the Facilities may appear and be heard. Written comments may be submitted to the City Clerk
at her office located at 990 Palm Street, San Luis Obispo, California 93401 until June 3, 1997.
Subsequent to the public hearing, the members of the City Council will consider a resolution
approving the execution and delivery of the COPs. _
NOTICE DATED: May 19, 1997.
/s/ Bonnie Gawf, City Clerk
City of San Luis Obispo, California
C-%.061Wom%zai4uiz%vW1 e71009-4.R"16121197jthlaa a1:
MAY 21 '97 15:15 AT&T FAX 9035FX P.2/3
JONES HALL HILL & WHITE,
A PROFESSIONAL LAW CORPORATION
ATTORN-EY$ AT LAW
C IZARL S F.ADAMS FOUR EMBARCADERO CENTER
STSPICEN A GS" G:.ro
NI2TETEENTS FLOOR
THOMAS'~DOWNET SATS FRANCISCO.CA 94111
ANDREW c HAL.I.JR. (446)801.6780
C:OIIRTNEY L JONES
CHRISTOPHER V.LYNGR
V-111AA-bi x XADISON May 20, 1997 (9 t°)H1M'67G&
1XAv1O.i.CMTZR IgNNETH L JONES
DAVM A.WALTON OF M17NBM
SHARON STANTON WEXIM
ROBERT J.BILL a9cc-1996)
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William C-Statler
Director of Finance
City of San Luis Obispo
990 Palm Street
P.O. Box 8100
San Luis Obispo, California 93403-8100
Re Proposed Tax-Exempt Financing For French Hospital Medical Center
Dear Bill:
At your request, we have reviewed drafts of various documents submitted to us in
connection with the proposed financing of the purchase of the French Hospital Medical Center
(the"Project") by Vista Hospital Systems, Inc. ("Vistaw). Such documentation has included the
drafts of the Resolution of the City Council, the Installment Purchase Agreement between the
City as purchaser and Vista as seller, the Installment Sale Agreement between Vista as
purchaser and the City as seller, and the Trust Agreement among the City, Vista and BNY
Western Trust Company as trustee (the `Trustee"). Purchase of the Project by Vista will be
financed from the proceeds of Certificates of Participation Series 1997. In addition, we have
had numerous telephone conversations with representatives of the various parties to the
transaction.
The scope of our engagement has been to act as counsel to the City,for the sole purpose
of ensuring that the City's interests are protected in the financing, and that the City does not
assume any substantive financial liability or obligations in connection with the financing of the
Project or otherwise in connection with the delivery of the Certificates. We have not undertaken
to review independently the validity of the underlying agreements or any matters relating to the
tax-exemption of interest represented by the Certificates, nor have we undertaken to analyze
the credit quality of the financing.
Under the various draft documents for the financing,the City's obligations are expressly
limited to the Revenues derived from the financing, consisting of payments made by Vista,
earnumgs on funds and accounts held by the Trustee,and other amounts derived with respect to
the Project. Neither the General Fund nor any other funds or properties of the City are liable to
make any payment due under the documents. In addition,the documents include appropriate
covenants by which Vista indemnifies the City against any cost, expense, claim or liability
arising from the transaction.
MAY. 21 ' 97 (WED) 16: 15 COMMUNICATION No :44 PAGE-2 J�//
MAY 21 '97 15:15 AT&T FAY 9035FX P.3/3
William C. Statler
May 20, 1997
page 2
Based on our analysis, we believe that the current draft documents for the financing
contain provisions which adequately protect the City's interests and ensure that the City does
not assume any substantive financial obligations or responsibilities in respect of the financing.
We will confirm this preliminary conclusion in writing following our review of the final executed
documents.
Please let me know if we can be of further help to you in this matter.
Y
F.XAdams
MAY. 21 ' 97 (WED) 1615 COMMUNICATION No :44 PACE. 3 ��/�.
1'4EETING AGENDA
-ATE '3-9 ITEM #.
PRIMUS ENT,INC.
May 20, 1997IL
- X ----_ -
Robert E. Hendrix �E' =. Y-,•:..:. ; i'
County Administrator
County Government Center, Room 370
San Luis Obispo, California 93408 ILE' O
_ -�-1. PFS:i.•.y -
Dear Mr. Hendrix:
I received a copy of your letter of May 6 to the City Council of the City of San Luis Obispo just
moments before addressing the San Luis Obispo City Council regarding conduit financing for Vista
Hospital Systems,Inc. I understand why you would inquire about the issue of access for medically
indigent persons,but I do not understand the purpose in asking the City to essentially attach a"rider"
to a technical financing step in a tax exempt financing especially one so comprehensive as to suggest
a particular rate structure or by mandating that Vista must contract with the County as a condition
of the conduit financing. Vista's bond counsel, tax counsel and financial advisors informed us that
such a"rider" is unprecedented.
As you may be aware, Vista is a nonprofit, public benefit corporation, which is a tax-exempt
organization under Section 501(c)(3) of the Internal Revenue Code. In order to qualify as a tax-
exempt organization, and to maintain such status, Vista is required to provide health care services
to individuals regardless of their ability to pay. This premiss is also the foundation of Vista's
charitable mission and purpose.
Vista has already begun negotiations with San Luis Obispo County representatives regarding the
provision of services to medically indigent persons in the County with the understanding that the
County wishes to eliminate inpatient services at San Luis Obispo General Hospital. Further,Vista
intends to suggest a long term contract,under reasonable terms,to provide services for such patients
at both Arroyo Grande Community Hospital and French Hospital Medical Center, and to explore
ways to provide similar services to such patients located in the northern part of the County. :Vista
will not condition the contract on the closure of SLO General Hospital but is willing to commemce
providing such services immediately upon executing a contract. Vista's intentions were discussed
approximately three weeks ago with Susan Zepeda when we initiated contact on this matter. She-
informed us that Lee Williams of the County Counsel's office is handlingthese negotiations. We
met with Mr. Williams on May 14 for initial discussions.
MAY '1_ ►yyl.
One Eleven Sutter Street, Suite 2150 • San Francisco, CA 94104 C!r r,�'.!Nt 1L r4
415.627.0755 • FAX 415.627.0766
Mr. Robert E. Hendrix
May 20, 1997
Page 2
It is Vista's desire to develop a good relationship with San Luis Obispo County government and to
work with the County Health Agency to address the health care needs of the community. Please feel
free to contact French Hospital Medical Center, or me directly, in the future should you require
additional information regarding Vista's plans.
Ytt
,ross
President & CEO
cc: Bill Roalman, City Council Member
Dave Romero, City Council Member
Kathy Smith, City Council Member
tZodie Williams, City Council Member
Susan Zepeda, Health Agency Director
John Dunn, City Administrator
Bill Statler, City Financial Officer
Jeffrey G. Jorgensen, City Attorney
Lee Williams, County Council Office