Wednesday, September 28, 2011

Mayor Zimmer corrects the record on two bidders who waived nondisclosure agreement

The Office of the Mayor announces:




Mayor Zimmer Corrects the Record Regarding Hospital Sale

There has been much confusion, much of it manufactured intentionally, about the nature of the bids received for the sale of Hoboken University Medical Center.  Specifically, two bidders, CHA/Jersey City Medical Center, (JCMC) and P3, have made public statements and released information with regard to their bids which has had the effect of misleading the public.  By doing so, they have waived confidentiality with respect to the actual content of their bids.   

It is important to clarify the record so that the public fully understands that the offer from HUMC Holdco was at all times the only proposal that preserved our hospital, protected our taxpayers, had real financing in place, and offered the best opportunity for the long term success of the hospital and its employees. 

The HUMC Holdco bid maintains all the vital services of our hospital and fully defeases the bond immediately, eliminating the financial risk for the City.  It was fully funded with a solid commitment from a qualified lender for the full purchase price.  After the sale, the hospital would be obligated to pay its full property tax generating approximately $600,000 of tax savings for Hoboken's taxpayers.  No other bid came close to meeting these criteria. 

As explained in more detail below, the CHA/JCMC bid did not maintain all of our hospital services, required the Hoboken taxpayers to remain liable on $15 million of debt, and was dependent on $59 million of government grants and tax credits that were speculative at best.   P3's initial bid was to manage not acquire the hospital, not defeasing any portion of the bond.  Their subsequent bid contained insufficient detail with respect to the purchase, and no credible assurance that they had access to the financing necessary to complete the deal.

Understanding CHA/Jersey City Medical Center's Bid: 
The CHA/JCMC bid was in fact not from JCMC, but from an entity called Community Healthcare Associates, LLC.  JCMC's involvement was limited to its agreement to lease a portion of the facility.  They would maintain only some of the services currently provided by HUMC.  The bid was for a for profit development project that would create a commercial building characterized as a medical mall that would lease space to healthcare related businesses.  In order to facilitate this commercial development, a redevelopment zone would have to be created and payments in lieu of taxes would have to be agreed upon. 

It is unclear whether the area even qualifies to become a redevelopment zone, which meant that their proposal may not have been legally possible.  In addition, the funding for the transaction was largely speculative with only $22.7 million in private equity. 

Their speculative proposal was dependent on successfully applying for and obtaining $59 million of public funding in the form of: 
1.  A $20 million Stabilization grant from the State of New Jersey.
2.  Applying for and receiving Urban Transit Hub tax credits in the amount of $39 million which would then be sold to another entity for $34.3 million.

These two elements of "financing," all of which involves the use of public money, would defease only $42 million of the debt under the bonds guaranteed by the City.  The balance would be refinanced as a direct obligation of the City of Hoboken through the issuance of $15 million of redevelopment bonds. The bid assumed that the PILOTs granted through redevelopment would pay the costs of these bonds.   In other words, this commercial for profit venture would pay no taxes and the City itself would remain liable for $15 million. 

Last but not least, the proposal explicitly stated that "the management company, Hudson Healthcare, will be able to satisfy its financial obligations with the collection of its accounts receivable."  Given the Hospital's bankruptcy filing, it is clear that this condition was impossible to meet and that CHA/JCMC's proposal provided no value whatsoever to the Hospital's unsecured creditors, including the two unions. 

Understanding P3's Bid:
Their initial proposal was only for the management of the hospital, not for its purchase.  This proposal was not considered because we were seeking to sell the hospital not hire a new manager.  It was, however, consistent with P3's experience given that they are a consulting firm that, to best of my knowledge, has never owned and operated a hospital.  They subsequently modified their bid to include an actual purchase offer.  There was no indication however that they had the financial resources to acquire the hospital themselves or had any ability to finance such an acquisition.  In the financing letter that P3 provided the financing firm stated “We have had discussions with P3 regarding its acquisition of Hoboken University Medical Center and would be interested in providing financing for HUMC after it has been stabilized and able to meet our lending criteria.”  The assertion that this represents a firm commitment to provide the financing is simply ridiculous. 

Given these facts, it is clear that the Holdco bid was the only bid that we received that would maintain our hospital services, fully defease the  $52 million bond, and which had the financing in place so that the transaction could actually be completed.

Finally, the public should know that the bid award for HUMC Holdco was voted on unanimously by the Hoboken Municipal Hospital Board, a team of volunteers dedicated to protecting the interests of our hospital and our City.  

The CHA/JCMC and P3 bids are provided here:


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