The primary political issue in Washington was not so much that the specific state agencies would lose the revenue from the issuance of particular debt of an entity in their area,” said one source. “There was really more concern that they weren’t going through the state-level approval process.”
But opponents of the deal, which was abandoned in December after concerns over its legality first surfaced, say they still harbor reservations.
Nevertheless, First Chicago expects to complete the deal in the next two months. Officials at the firm did not return telephone calls this week.
Bob J. Nash, president of the authority, yesterday declined to comment on the deal, speaking through an intermediary. The intermediary said that “major questions” could “only be answered after the transaction is completed.”
As many as four hospital systems are expected to borrow from the deal’s proceeds, which could reach $60 million, a source familiar with the transaction said.
According to a draft official statement, the bonds would be convertible from fixed to variable rates, and they would be backed by a letter of credit from Fuji Bank Limited. Early this week, closing was tentatively slated for May 7.
Potential borrowers belong to American Healthcare Systems, a nonprofit association of hospital systems, many with holdings in more than one state and comprising 1,086 hospitals.
The deal’s promoters hope the transaction will be the first of many, all of which would come to market through the Arkansas Development Finance Authority.
The Arkansas authority, a First Chicago employee said last fall, is perhaps the sole conduit agency capable of exporting tax-exempt loans to other states.
“The ADFA has the statutory approval to enter into a program like this,” said Thomas P. Fischer, then a vice president at First Chicago. “To our knowledge, no other authority has the ability.” Mr. Fischer is no longer employed by the company.
Annual borrowing for the multistate pool could total $200 million a year, a source said in November.
In return for giving its imprimatur to the deals, the authority would collect fees to fund health clinics in Arkansas. That, officials at the authority have said, would satisfy state requirements that tax-exempt bond issues benefit the citizens of Arkansas.
The novel financing raised hackles, both in Washington and among the nation’s hospital financing authorities, when it became known last fall. An aide for Rep. Brian Donelly, D-Mass., said he opposed it.
The aide, Thomas Barker, said yesterday that he had not heard of any steps taken to address concerns about the financing. “It is safe to say my boss would still oppose it,” Mr. Barker said.
In addition, representatives of a national association of hospital financing corporations loudly protested the transaction.
Lawyers for the National Council of Health Facilities Finance Authorities, a consortium of 26 tax-exempt bond conduits, contended that the the multistate hospital lending pool would “frustrate” their mission and not meet TEFRA standards.
In addition, they also said that the transaction would violate the spirit of federal law, if not the letter.
“The privilege granted to states by Congress to issue tax-exempt bonds for health care organizations is traditionally rooted in the understanding that the financed projects will serve a public purpose in the host state,” says the letter, which was drafted by attorneys at the Boston firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. The letter was submitted to the authority on Dec. 5 in Little Rock.