Verdugo Hills asks city for loan aid

Hospital seeking a $14-million loan through city for the tax break; city would be named on note but not fiscally impacted.GLENDALE -- Verdugo Hills Hospital is asking the city to act as an intermediary in a $14-million loan to upgrade its facilities and pay down past debts.

The City Council will consider approving the bond at tonight’s meeting. City law only allows the council to issue such loans to health facilities that provide crucial services to local residents.

Having the loan issued through the city results in tax advantages for the hospital, Finance Director Bob Franz said.

The loan transaction will actually take place between Wells Fargo Bank and the hospital, but with the city issuing the revenue notes. The transaction will result in no costs to the city or its taxpayers, Franz said.

“It is what we call a conduit bond, where the city of Glendale’s name is on the bonds, but the legal documents require the hospital to repay the debt,” Franz said. “So we are not at any legal or financial risk, even in the event of default.”

While the hospital benefits financially with the city as an intermediary in the loan process, the benefits to Glendale’s residents from the resulting improvements to the hospital are invaluable, Councilman Bob Yousefian said.

“In an era that a lot of hospitals are shutting their doors, we are blessed to have three hospitals in our own city that are expanding and providing exemplary service to our community and beyond,” Yousefian said. “For us as a council to aid them in this fashion, I am more than happy to do it.”

In the transaction, Wells Fargo Bank will lend the city the money and the city will in turn issue the notes to the hospital.

The money will go into an independent escrow account, which the hospital will then be able to tap into. The notes will mature in January 2013, according to a city staff report.

Most of the funds will be used to pay off old bonds the hospital floated for major building projects in 1983 and 1994, said Lisa Knapp, Verdugo Hills’ marketing and public relations director.

“[Of the $14 million,] $11.3 million will be used to retire the old bonds, which will save the hospital $15,000 a month in interest costs,” Knapp said, adding the hospital is taking advantage of today’s lower interest rates.

The remaining funds will be used to remodel the hospital’s fourth floor, used for acute patient care, to upgrade its information technology systems and for an energy retrofit, Knapp said.

“The retrofit alone will save us a ton of dollars in energy costs,” she said.

The city issued a $175-million, tax-exempt bond on Sept. 27 to cover construction projects at the Glendale Adventist Medical Center and other Adventist facilities throughout the state.

In that case, as with Verdugo Hills, the city is protected from financial liability, Franz said.

Verdugo Hills Hospital’s 158-bed facility is located at the border of Glendale and La Cañada Flintridge and serves the foothill communities. The hospital was founded in 1972, has a newly renovated emergency room, and employs 733 full- and part-time employees.

It had 6,291 admissions in 2002.

* FRED ORTEGA covers City Hall. He may be reached at (818) 637-3235 or by e-mail at fred.ortega@latimes.com.