Pella Chronicle

Local News

December 11, 2012

Council approves sales of Healthcare Facilities Revenue Bonds

Pella — The Pella City Council approved a resolution during last week's regular meeting authorizing the Issuance and Sale of Healthcare Facilities Revenue Bonds (Hearthstone Project).

This resolution authorizes the issuance and sale of conduit revenue bonds for the Hearthstone Project in the principal amount of not to exceed $10,000,000, in addition, the resolution also approves the loan agreement and pledge agreement and directs the Mayor and City Clerk to execute and deliver all other documents required for the purpose of the Hearthstone project.

On November 20, 2012, a public hearing was held, and Council approved a resolution for the issuance and sale of revenue bonds for the Hearthstone Project, in addition, the Council also authorized proceeding with all necessary agreements to issue conduit revenue bonds for the project.

The purpose of the conduit bond issue is to fund a senior retirement community Hearthstone is constructing on 50 acres directly north of the Pella Country Club at 1620 Main Street. This development will consist of 64 nursing beds and up to 34 one and two bedroom assisted living units. To finance the project. Hearthstone would like to issue tax-exempt bonds to fund the estimated construction cost of $20 million. The advantage of tax exempt financing is that it will allow the project to have a lower interest rate than taxable bonds. In order to accomplish Hearthstone's financing needs, they have made a request to the City of Pella to issue a $10 million Conduit Revenue Bond issue for the project.

This bond issue is a 'conduit' issuance because the City acts as conduit between the purchasers of the bonds and Hearthstone. Under this arrangement, the bonds are issued by the City and the proceeds of the bonds are then loaned to Hearthstone through a loan agreement in which Hearthstone agrees to repay the bondholders. It is important to note the following in issuing Conduit Bonds: the bonds do not constitute a liability or indebtedness of the City; the bonds do not count against the City's 5% constitutional debt limit; and the bonds will count against the City's bank qualified issue limits of $10 million per calendar year.

Staff performed a review of Hearthstone's financial plan to fund the project and feels Hearthstone has the ability to repay a conduit bond issue on a timely basis, in addition, staff also believes the proposed bond issue is in accordance with the City's Conduit Revenue Bond Policy which is enclosed for Council's review. Finally, it is important to note the City's bond counsel has reviewed the loan and pledge agreements.

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