The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Public Hospitals Authority’s (PHA) bond issue was oversubscribed by $3.324 million, Tribune Business was told yesterday, with the sum raised coming “very close” to its placement agent’s $50 million prediction.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, said the PHA Board had yet to decide whether to accept the extra funds raised from its $45 million note placement.

He added that the proceeds would help to finance a Princess Margaret Critical Care Block that would “set the Bahamas apart from the Caribbean” on healthcare, there being no other facility in the region like it.

“We raised $48.324 million,” Mr Anderson told Tribune Business. “It was actually a $45 million offering, and at this stage we’ve not been advised by the Board of the PHA whether or not they will take the extra amount.”

The National Insurance Board (NIB) took $10 million worth of bonds as repayment for an earlier loan to the PHA, leaving $35 million available to other Bahamian investors.

Mr Anderson said more than 50, mainly institutional investors such as mutual funds, pension funds and insurance companies, bought into the offering.

“At the time, I wasn’t sure what we’d get,” he said of the offering’s Monday, November 4, launch. “We’d anticipated it would get fully placed, and had indications from a number of investors that they would come in, so we thought it likely that it would be oversubscribed.

“We got most of the institutional money in the first day. I expected to get around $50 million, and we ended up with $48.3 million, so we were very close to where we expected to be.”

The $45 million is the first tranche of what could ultimately be $100 million worth of PHA bonds sold into the Bahamian capital markets, as a means of raising debt to finance the Princess Margaret Hospital’s renovation and expansion needs.

Mr Anderson said the timing of future issues would depend on the PHA’s construction needs, and described the initial placement as “a good start to the capital raising needs of the hospital”.

“That’s the first time the hospital has been in the market for capital, and it was well-received by the market,” he added.

“I walked around the [Critical Care Block] for the first time on Friday, and it’s impressive what they’ve done. The critical care rooms, neonatal centre, all operating theatres, it’s impressive stuff.

“You could be in the US or some other place. I think the money raised has been well invested in this project, and I think it sets the Bahamas apart from the Caribbean for sure.

“There will not be another facility in the Caribbean like it, so it’s good to see the money being invested well.”

The $45 million private placement is just the first phase of refinancing plans intended to repay the $55 million Royal Bank of Canada loan that funded the Critical Care Block construction, plus provide the Princess Margaret Hospital (PMH) operator with more working capital.

Some $65 million of the $100 million will be used to repay Royal Bank, leaving roughly $35 million - almost one-third - of ultimate bond proceeds free for other purposes.

The $45 million offering was intended to generate $30 million towards repaying the Royal Bank loan, with the remaining $10 million dealing with the existing debt owed to NIB. The remaining $5 million will be used to finance the PHA’s “general operations” and the offering costs.

Mr Anderson said the timing of the next PHA bond issue had “not been determined”, but he added that he was happy with the market’s support for the first tranche.

“The hospital is effectively supported by the Government, and it would never be able to pay the loan on its own, as it’s not the way it’s structured,” Mr Anderson added. “It’s an institution with an annual subvention to meet its obligations.”

The last audited financial statements for the PHA, produced by the Grant Thornton accounting firm for the year to end-June 2012, were ‘qualified’ due to its ‘current’ solvency deficiency.

“We draw attention to Note 22 in the financial statements, which indicates that the Authority’s current liabilities exceeded its current assets by $18.628 million,” Grant Thornton said.

While this was down from the $26.405 million that existed at end-June 2011, the accountants noted that the PHA’s accumulated deficit stood at $73.042 million on June 30, 2012.

Grant Thornton added: “These conditions, along with other matters as set forth in Note 21, indicate the existence of a material uncertainty, which may cast significant doubt about the Authority’s ability to continue as a going concern without the continued financial support of the Government of the Commonwealth of the Bahamas.”

Data contained in the private placement memorandum shows the Government injected subsidies of $183.439 million and $207.136 million into the PHA in 2011 and 2012, respectively.

While it still suffered a $10.195 million comprehensive loss in 2011, the PHA was able to turn a small $2.888 million profit the following year, albeit with a massive government subsidy.