Tampa General Hospital completed a tender program last week that will dramatically reduce the number of bondholders subject to a controversial mandatory redemption in July.
Although officials at the Florida hospital are not commending on the exact amount of bonds tendered, the program appears to have persuaded at least 80% of bondholders to sell their bonds for about 107% of par, based on figures from a preliminary official statement circulating yesterday for an upcoming refinancing.
The hospital plans to pay for most of the tender with proceeds from the bond issue, slated for next week, so the size of the deal gives a clue to the success of the tender.
The preliminary official statement pegs the refinancing at $132 million, a figure subject to change. About $154 million of bonds are outstanding from the deal, which was sold through the Hillsborough County Hospital Authority in 1986. A bond issue of the size proposed would mean at least 80% of the bonds were tendered, according to sources involved in the transaction.
The price for the tender, set through a bondholder bidding process, appears to meet investors' demands that they be compensated for their bonds at the market price in February, prior to the hospital's surprise announcement that the issue would be redeemed at par in July.
Before the annoucement, which was based on a widely ignored clause in the 1986 deal's official statement, the bonds had been trading at about 107% of par because bondholders were expecting a prerefunding.
But Tampa said rather than prerefund, it would invoke a provision in the indenture that forces a call at par in July. The bonds immediately plummeted to near par on the news, and several large institutional investors suffered big losses, according to market sources.
Bondholders began a major pust to persuade Tampa not to go ahead with the redemption, arguing that the provision was being interpreted improperly.
The complaints prompted hospital officials to rethink strategy. They announced the tender program late last month as a compromise to allow investors an option to the July 1 redemption.
A number of bondholders did not respond to the tender program, and their bonds will be redeemed with a portion of a $50 million cash supply the hospital has available for that purpose. Some of the cash might also be used to pay the costs of the tender.
A source close to the deal said it has not yet been decided how much of the $50 million will be used for a redemption or precisely how large a bond issue will be sold to pay for the tender. Regardless, 100% of the issue will be refinanced, one way or the other, he said.
The provision at the heart of the controversy was interpreted by the hospital to require the redemption if certain conditions are met first. They are that the hospital's outstanding 1982 and 1985 issues are fully redeemed and proceeds remain available from the 1986 issue. If those conditions are met by June 1, 1992, then the 1986 bond proceeds can be used for the mandatory redemption on July 1.
The hospital was planning to use proceeds from the new 1992 bond issue to refinance the 1985 deal to meet that set of requirements. But investors argued that the provision was not meant to allow the use of borrowed money to free up proceeds from a previous loan.