PHOENIX - A Northern California healthcare district that closed its only hospital with $57 million of certificates of participation outstanding is sorting out its obligations in bankruptcy court.
U.S. Bank, the trustee on $17.3 million of 2004 COPs and $39.7 million of 2011 COPs issued by the West Contra Costa Healthcare District, filed a bondholder notice on the Municipal Securities Rulemaking Board's EMMA website Jan. 20, saying that it intends to file a claim on behalf of the bondholders during the bankruptcy proceedings underway in U.S. Bankruptcy Court for the Northern District of California.
The district filed for Chapter 9 relief Oct. 20, and the court has set Jan. 31 as the deadline for filing proofs of claim against the district.
The district's Doctors Medical Center closed in April 2015.
While the hospital no longer is operating, the district has ongoing expenses and no source of funds.
The district is under contract to sell the hospital for $13 million, and the purchaser is currently engaged in due diligence.
The trustee said there is no guarantee the pending sale will close.
On Jan. 11 the court authorized the district to use a limited amount of excess parcel tax revenues to pay for the district's ongoing expenses through June 30.
Contra Costa County resident and taxpayer activist Wendy M. Lack disagreed in a letter to the court, arguing that the bond documents forbade the use of the revenues in that manner.
"The district is asking the trustee to breach the contract with investors," wrote Lack, who added that she believes the district grossly overpaid for bookkeeping services and made other unwise or nonsensical spending decisions in the wake of the hospital closing.
Revenue from a 2004 voter approved parcel tax on properties in the 250,000-population district is pledged to repay the 2004 and 2011 COPs.
Voters passed another parcel tax in 2011 in an effort to keep the hospital functioning, but the ballot language called for the tax to lapse if the emergency room closed, as it did when the hospital shuttered in 2015.
In its bondholder notice, the trustee said it had obtained protections from the court, including a replacement lien on the parcel tax after the sale of the hospital property.
The district's most recent audited financials were filed for the 2012 calendar year and were not filed until September 2013. In those filings, the district reported an operating loss of $25 million.
The trustee made the regularly scheduled debt service payments on the certificates on Jan. 3. In addition, the 2004 official statement provides that the 2004 certificates are insured by a financial guaranty insurance policy issued by Ambac Assurance.
"While the trustee can make no assurances that all payments will be made with respect to the certificates, the 2004 official statement provides that Ambac Assurance will ensure payments on the 2004 Certificates are made on stated payment dates, stated maturity dates, and stated sinking fund installment dates," U.S. Bank said.
According to the hospital closure announcement the healthcare district posted on EMMA in 2015, it expects to fully retire the 2004 COPs by approximately 2020.
Following the redemption of the 2004 COPs, proceeds of the 2004 parcel tax revenues not needed to pay debt service on the 2011 COPs will be used to redeem outstanding 2011 COPs beginning on July 1, 2021.
The district expects to fully retire the 2011 COPs issue by approximately 2027, it said in the closure notice.
