Connie Lee Insurance Co. has about $2.5 million of exposure to the Sacred Heart Hospital of Norristown, Pa., which closed its doors last week after defaulting on about $25 million of outstanding bonds.
Connie Lee's exposure to the hospital stems from a reinsurance agreement the firm made with another firm that had reinsured the exposure for Municipal Bond Investors Assurance Corp., the primary insurer on the deal. Connie Lee officials declined to name the original reinsurance company, but sources familiar with the transaction say it was Enhance Reinsurance Co.
MBIA had assumed liability for nearly $25 million of Sacred Heart debt when it acquired Bond Investors Guaranty Insurance Co. in 1989.
"Connie Lee's share of [MBIA's] outstanding exposure is 10%," said Irene Lombardo, director of communications at the firm. "I think this is an isolated incident. Currently, no other insured or reinsured credit in Connie Lee's portfolio warrants any concern or action."
A spokeswoman for Enhance said, "We never comment on our participation or absence as a reinsurer. We were not affected by the reserves that MBIA is establishing."
Connie Lee and MBIA officials also declined to comment on the intricacies of the reinsurance agreements.
Sacred Heart abruptly closed on May 17. The hospital's trustee, Continental Bank, sent a letter to bondholders earlier this month saying that $30 million of bonds, issued in 1987 by the Montgomery County Higher Education and Health Authority on behalf of the hospital, were in default following the failure of the hospital to make a $600,000 payment April 15.
The trustee made the payment by drawing on the hospital's debt service reserve fund, which has about $1.8 million remaining. MBIA officials said last week they expect the reserve fund will last until August 1995.
Once the reserve fund is exhausted, however, bondholders will expect payments from MBIA and Connie Lee.
AMBAC Indemnity Corp. has a $400,000 exposure on a second bond issued on behalf of the hospital in 1988.
Insurance officials stressed last week that all principal and interest payments will be made on time for both issues, as prescribed by the insurance agreements.