Dragovits says $680 million of the $705 million will be in bonds issued through the Build America Bonds federal program, which came about as a result of the American Recovery and Reinvestment Act that President Barack Obama signed into law earlier this year. Under BAB, the federal government will subsidize 35% of the interest payment. "These bonds are taxable bonds and will have higher interest rates," says Dragovits. "The federal government subsidizes us for the difference." Dragovits estimates that the hospital will save $60 million to $80 million over the life of the bond.
The cost of borrowing under the BAB—less than 4%—is significantly less than what was originally projected even back when the credit markets were great, says Dragovits. "There was a time we targeted around 4.5% back in the good old days when the market went well and money was free." Once the markets froze and interest rates spiked, he says the hospital was looking at 5% to 6% in interest.
Because the project is in its early stages, Dragovits says that he has essentially been waiting to see if anything moved in the market or the government. "Well two things happened: The government came along with Build America Bonds and the markets have opened up, so the combination of both and the fact that we were successful in being highly rated has given us the opportunity to potentially save tax payers a couple million dollars a year in interest costs."
Now onto the hard part: building a new facility. Construction is due to start in early 2011.