IRON MOUNTAIN — A financing plan of up to $32 million for Dickinson County Healthcare System won approval from the county board this morning, setting in motion a schedule that calls for the sale of tax-exempt revenue bonds March 31.

Hospital CEO Chuck Nelson said the plan assures DCHS will be “a resource for the community for years to come.”

The borrowing places no obligation on taxpayers, but the county will give up the deed to its hospital property on U.S. 2, allowing it to be placed in the name of DCHS once the bonds are sold.

Including the hospital site, the appraised value of all DCHS properties will exceed the amount of the borrowing, said Jerry Worden, DCHS interim chief financial officer.

“We’re all behind you and hoping everything goes well,” County Board Chairman Henry Wender said. “I’m sure it will.”

The timing of the revenue bond sale is tied to a balloon payment owed to Fifth Third Bank, which will receive nearly $10 million of the proceeds. The remainder will be used to refinance about $4 million in other debts, acquire some $9 million in medical equipment, upgrade information systems at a cost of $5 million and perform other facility improvements. About $2.2 million is needed to establish a debt service reserve fund.

The hospital had hoped to secure a $26 million federal loan before the Fifth Third Bank deadline, but that’s unlikely as U.S. Department of Agriculture Rural Development officials want evidence of financial stability through 2020.

“That didn’t work because of the timeline we were expected to wait,” said Margaret Minerick, hospital board chairwoman. The alternative financing plan, she said, will “put it in our hands to control.”

The interest rate on the bonds will depend on the market, but Worden believes it won’t be prohibitively higher than the 3.5% rate estimated when DCHS applied for the 25-year USDA loan in August. The bond issue will be 21 to 22 years, and Worden has suggested the rate could be in the range of 4.5%, although markets are especially uncertain because of the coronavirus.

With the stock market dropping in recent days, interest rates have also been trending down. “It’s a good time to sell a bond,” hospital board member David Brisson said.

A preliminary official statement on the bond sale could be ready by the end of this week, with pre-marketing to follow, Worden said. “There’s a lot of hoops we’re still running through,” he noted.

Although not a part of the bond offering, DCHS intends to settle a $1.8 million debt with Bellin Health Systems of Green Bay, Wis. — credit that was extended before Bellin withdrew an offer to acquire the hospital in May 2018.

Before a financial rebound in 2019, DCHS had incurred losses of roughly $21 million from 2016 through 2018, pushing it toward insolvency. The hospital was prepared in September 2018 to explore Chapter 11 bankruptcy before Washington D.C.-based Venable LLC was hired to oversee a restructuring.

The USDA loan was the centerpiece of Venable’s strategy, but DCHS has nonetheless achieved enough stability to make a bond issue viable. The hospital reported $1.9 million in net income in 2019, compared with a loss of $2.7 million in 2018. A similar profit is budgeted for 2020 and January closed with a positive bottom line of $467,963.

“We have a great management team in place and great employees,” Minerick told the county board.

Commissioner Joe Stevens, a liaison to the hospital board, said it appears DCHS has turned a corner. “If the hospital has bright future, the community has a bright future,” he said.

DCHS operates as a Michigan municipal health facility corporation under Public Act 230. It receives no county appropriations or taxpayer support and has been self-sustaining since moving to its U.S. 2 site in 1996.

While ownership of the hospital would change under the financing plan, there is no call to alter the corporation’s legal status. DCHS board appointments will remain subject to the advice and consent of the county board.

The county also had agreed to surrender the hospital deed under the USDA loan plan. That application remains open but will be withdrawn once the revenue bonds are sold. The deed, meanwhile, remains in escrow until the debt refinancing is completed and will go back to the county should it fail.

The 27-acre parcel that includes Dickinson County Memorial Hospital and related clinics was purchased by DCHS for $700,000 in 1994. In exchange for the county approving DCHS’s request to seek revenue bonds for construction of the hospital, the county required it be deeded the property and that DCHS pay off the outstanding $500,000 balance of general obligation bonds on the former hospital on Woodward Avenue.

Under the 1994 deed, the county agreed to lease the U.S. 2 site to DCHS for a century, at the nominal rent of $1 per year, but the county has retained title and ownership to the property and buildings.