Financing Trouble May Delay Hospital Construction in N.J.

Fri March 13, 2009 - Northeast Edition
Eli Segall

TRENTON, N.J. (AP) Wall Street’s credit crunch is putting a damper on a New Jersey health care company’s hospital project in the Philadelphia suburbs.

Virtua Health is touting the hospital as a “state-of-the-art, digital’’ facility, with flat-screen entertainment monitors and a serene atmosphere to enhance healing. But executives acknowledge that construction could be delayed because of trouble getting financing.

Virtua wants to sell bonds to help pay for the project, but the volatile bond markets have made it expensive to borrow money, and executives say they won’t sell them until conditions improve.

Assemblyman Gary Schaer, D-Passaic, mentioned the dilemma at a hearing in February, saying the company told him the soured credit markets are “virtually causing the project to halt in its tracks.’’

So far, Virtua has funded the $463 million project with cash, spending $70 million as of mid-February, according to Bob Segin, the firm’s chief financial officer.

Virtua hopes to sell roughly $600 million worth of bonds by the end of spring.

“No health system could finance a large project such as our new hospital entirely using cash,’’ Fred Hipp, vice president of government relations, said in a statement.

Virtua, a nonprofit based in Marlton, has 7,900 employees at four hospitals, two outpatient surgical centers and other facilities.

The new hospital, an eight-story building in Voorhees is slated to have 360 beds and provide maternity, pediatric and cardiology services, among other things. It will replace Virtua’s existing 285-bed hospital in Voorhees.

Virtua started construction about a year ago and says it will finish by 2011.

But it’s unclear when the company will get the bond financing. Corporate bond markets, while improving in recent weeks, are still packed with buyers demanding high interest rates, said Sheryl Skolnick, a health care industry analyst with CRT Capital Holdings LLC, an investment firm in Stamford, Conn. That makes it more expensive for a company to borrow money.

The market for some nonprofit hospital bonds is even worse, Skolnick said. Demand for the bonds, she noted, is tied heavily to the firms insuring them. But bond insurers are struggling: some have lost money on soured investments, causing credit downgrades and other problems.

Bonds insured by a company with lower credit ratings are often viewed as riskier investments for which investors will want higher interest rates.

“It’s very difficult and I’m sure very frustrating for nonprofit hospitals,’’ Skolnick said.

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