Hospital Authority of Albany

Transcription

NEW ISSUE
(Book-Entry Only)
RATINGS
Moody’s Aa3
S&P AASee “MISCELLANEOUS - Ratings” herein.
In the opinion of McKenna Long & Aldridge LLP, Bond Counsel, subject to the limitations and conditions described
herein, interest on the Series 2012 Certificates is (i) excludable from gross income for federal income tax purposes
and not treated as an item of tax preference in computing the federal alternative minimum tax (although, it is to be
taken into account by certain corporations as an adjustment to adjusted current earnings in determining alternative
minimum taxable income) and (ii) exempt from present State of Georgia income taxation. For further details, see
“TAX EXEMPTION AND OTHER TAX MATTERS.”
$107,900,000
HOSPITAL AUTHORITY OF ALBANY-DOUGHERTY COUNTY, GEORGIA
Revenue Anticipation Certificates
(Phoebe Putney Memorial Hospital)
Series 2012
Dated: Date of Delivery
Due: December 1 as shown on the Inside Cover
$107,900,000 of Revenue Anticipation Certificates (Phoebe Putney Memorial Hospital) Series 2012 (the “Series 2012
Certificates”) are being issued by the Hospital Authority of Albany-Dougherty County, Georgia (the “Authority”) to provide funds
to lend to Phoebe Putney Memorial Hospital, Inc. (“PPMH”) to (i) finance the costs of making certain additions, extensions, and
capital improvements to its health care system, and (ii) pay the costs of issuing the Series 2012 Certificates. See “PLAN OF
FINANCING” herein.
The Series 2012 Certificates are being issued pursuant to an Indenture of Trust (the “Certificate Indenture”), dated as of
December 1, 2012, between the Authority and U.S. Bank National Association, as certificate trustee (the “Certificate Trustee”).
The Series 2012 Certificates are special limited obligations of the Authority payable from and secured by a pledge of the payments
to be made under the hereinafter described Series 2012 Obligation and certain funds held under the Certificate Indenture. To
evidence its obligation to repay the loan of the proceeds of the Series 2012 Certificates, PPMH will issue and deliver to the
Authority its Series 2012 Obligation in the original principal amount of $107,900,000 (the “Series 2012 Obligation”), under a Master
Trust Indenture, dated as of March 1, 2002, as supplemented and amended (the “Master Indenture”), between PPMH and U.S.
Bank National Association, as successor master trustee. The Series 2012 Obligation is a joint and several general obligation of
PPMH, Phoebe Putney Health System, Inc., and affiliates of these corporations that may in the future become obligated under the
Master Indenture (collectively the “Obligated Group”), secured by a pledge of the gross receipts of the Obligated Group, to the
extent and subject to the limitations described herein. To secure its obligations under the Series 2012 Certificates, the Authority
will assign and pledge to the Certificate Trustee all of its right, title, and interest in and to the Series 2012 Obligation pursuant to
the Certificate Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 CERTIFICATES” herein.
The Series 2012 Certificates will only be issued in book-entry form registered in the name of Cede & Co., the nominee of
The Depository Trust Company, New York, New York (“DTC”). Payment of the principal of, premium, if any, and interest on the
Series 2012 Certificates will be made by the Certificate Trustee directly to Cede & Co., as nominee for DTC, as registered owner
of the Series 2012 Certificates, and will be subsequently disbursed by Cede & Co. to DTC Participants and thereafter to Beneficial
Owners of the Series 2012 Certificates, all as further described herein. See “Description of the Series 2012 Certificates – BookEntry System of Registration” herein. Interest on the Series 2012 Certificates will be payable semiannually on each June 1 and
December 1, commencing June 1, 2013. See “Description of the Series 2012 Certificates” herein.
The Series 2012 Certificates are subject to optional and extraordinary redemption prior to maturity as described herein. See
“THE SERIES 2012 CERTIFICATES - Redemption” herein.
The Series 2012 Certificates do not constitute a debt, liability, general or moral obligation, or pledge of the faith
and credit or taxing power of the City of Albany, Georgia or Dougherty County, Georgia. No governmental entity,
including the City of Albany and Dougherty County, is obligated to levy any tax for the payment of the Series 2012
Certificates. The Authority has no taxing power.
This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors
must read the entire Official Statement to obtain information essential to making an informed investment decision.
The Series 2012 Certificates are offered when, as, and if issued by the Authority and accepted by the Underwriters, subject
to prior sale and to withdrawal or modification of the offer without notice, and are subject to the approving opinion of McKenna
Long & Aldridge LLP, Atlanta, Georgia, Bond Counsel. Certain legal matters will be passed on for the Authority by its counsel,
Perry & Walters, LLP, Albany, Georgia, for the Obligated Group by its counsel, The Baudino Law Group, Des Moines, Iowa, and
Thomas S. Chambless, Senior Vice President and General Counsel of PPMH, and for the Underwriters by their counsel, Peck,
Shaffer & Williams LLP, Atlanta, Georgia. The Series 2012 Certificates in definitive form will be delivered to the Certificate Trustee
on behalf of DTC under the DTC FAST system of registration on or about December 13, 2012.
BofA Merrill Lynch
Morgan Stanley
Raymond James | Morgan Keegan
The date of this Official Statement is November 30, 2012
$107,900,000
REVENUE ANTICIPATION CERTIFICATES
(PHOEBE PUTNEY MEMORIAL HOSPITAL)
SERIES 2012
MATURITY SCHEDULE
Maturity
(December 1)
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
$14,720,000 4.00%
$53,520,000 4.00%
Principal
Amount
Interest
Rate
Yield
Price
CUSIP‡
$1,725,000
2,310,000
2,310,000
2,500,000
2,590,000
2,755,000
2,790,000
2,600,000
940,000
1,050,000
1,145,000
1,260,000
1,385,000
1,530,000
1,670,000
1,845,000
2,010,000
2,225,000
2,410,000
2,610,000
2.000%
2.000%
4.000%
3.000%
5.000%
5.000%
4.000%
3.000%
5.000%
4.000%
5.000%
5.000%
5.000%
4.000%
5.000%
3.000%
5.000%
3.000%
3.125%
3.250%
0.28%
0.55%
0.82%
0.97%
1.19%
1.34%
1.56%
1.80%
2.05%
2.29%
2.46%
2.51%
2.56%
2.86%
2.67%
3.06%
2.79%
3.17%
3.23%
3.32%
101.659
102.832
109.301
107.880
118.321
120.920
116.047
108.868
124.050
115.160
122.328*
121.834*
121.343*
109.824*
120.270*
99.245
119.112*
97.684
98.518
98.983
012170DM5
012170DN3
012170DP8
012170DQ6
012170DR4
012170DS2
012170DT0
012170DU7
012170DV5
012170DW3
012170DX1
012170DY9
012170DZ6
012170EA0
012170EH5
012170EJ1
012170ED4
012170EE2
012170EF9
012170EG7
Term Certificates due December 1, 2037, Priced at 103.578* to Yield: 3.57%, CUSIP 012170EB8
Term Certificates due December 1, 2042, Priced at 103.154* to Yield: 3.62%, CUSIP 012170EC6
PRELIMINARY NOTICES
No dealer, salesman or other person has been authorized to give any information or to make any representations
other than those contained in this Official Statement, and if given or made, such information or representations must not
be relied upon as having been authorized by PPMH, the Authority, or the Underwriters. The information set forth herein
concerning PPMH has been furnished by PPMH and is believed to be reliable, but is not guaranteed as to accuracy or
completeness by, and is not to be construed as a representation by, the Authority or the Underwriters. The Authority
takes no responsibility as to the accuracy or completeness of the information contained in this Official Statement other
than that under the heading “THE AUTHORITY” and under the heading “LITIGATION – The Authority.” The
information contained herein is subject to change without notice, and neither the delivery of this Official Statement nor
any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs
of the Authority or PPMH since the date hereof.
‡
*
None of the Authority, the Obligated Group or the Underwriter take responsibility for the accuracy of the CUSIP© numbers, which
are included solely for the convenience of the purchasers of the Series 2012 Bonds. CUSIP numbers on the inside cover of this
Official Statement are copyright 2009 by the American Bankers Association. CUSIP data herein is provided by Standard & Poor's,
CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not
serve in any way as a substitute for the CUSIP Service Bureau.
Priced to the first par call date, December 1, 2022.
This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any state to any person to whom it is unlawful to make such offer in such state. Except where
otherwise indicated, this Official Statement speaks as of the date hereof. The information and expressions of opinion
herein are subject to change without notice and neither the delivery of this Official Statement nor any sale hereunder will
under any circumstances create any implication that there has been no change in the affairs of PPMH since the date
hereof.
In making an investment decision, investors must rely on their own examination of the Series 2012 Certificates,
PPMH, and the terms of the offering, including the merits and risks involved. The Series 2012 Certificates have not been
recommended by any federal or state securities commission or regulatory authority. Furthermore, no such commission or
regulatory authority has confirmed the accuracy or determined the adequacy of this Official Statement. Any
representation to the contrary is a criminal offense.
The Underwriters have provided the following sentence for inclusion in this Official Statement. The
Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their
responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction,
but the Underwriters do not guarantee the accuracy or completeness of such information. The information contained in
this Official Statement has been furnished by PPMH, the Authority, DTC and other sources which are believed to be
reliable, but such information is not guaranteed as to accuracy or completeness by, and is not to be construed as a
representation of, the Underwriters. The information and expressions of opinion herein are subject to change without
notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the parties referred to above since the date hereof.
THE SERIES 2012 CERTIFICATES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE CERTIFICATE INDENTURE HAS NOT BEEN QUALIFIED UNDER THE
TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN
SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2012 CERTIFICATES IN
ACCORDANCE WITH APPLICABLE PROVISIONS OF LAWS OF THE STATES IN WHICH SERIES 2012
CERTIFICATES HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION
OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF.
NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE
SERIES 2012 CERTIFICATES OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT.
ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2012
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS
MAY OFFER AND SELL THE SERIES 2012 CERTIFICATES TO CERTAIN DEALERS AT PRICES LOWER
THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC
OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS.
THE SERIES 2012 CERTIFICATES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE ON
CERTAIN EXEMPTIONS FROM REGISTRATION.
Cautionary Statements Regarding Forward-Looking Statements
This Official Statement contains statements which should be considered “forward-looking statements,” within
the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States
Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended,
meaning they refer to possible future events or conditions. Such statements are generally identifiable by the words such
as “anticipate,” “believe,” “budget,” “estimate,” “expect,” “intend,” “plan,” “forecast,” or similar words.
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. PPMH DOES
NOT EXPECT OR INTEND TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING
STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON
WHICH SUCH STATEMENTS ARE BASED OCCUR.
TABLE OF CONTENTS
Page
INTRODUCTION ......................................................................................................................................................... 1
The Authority ......................................................................................................................................................... 1
The Combined Group ............................................................................................................................................. 1
Certificate Trustee and Master Trustee................................................................................................................... 1
Purpose of the Series 2012 Certificates .................................................................................................................. 2
The System ............................................................................................................................................................. 2
Security and Sources of Payment for the Series 2012 Certificates ......................................................................... 2
Description of the Series 2012 Certificates ............................................................................................................ 3
Tax Exemption ....................................................................................................................................................... 4
Professionals Involved in the Offering ................................................................................................................... 4
Legal Authority ...................................................................................................................................................... 4
Offering and Delivery of the Series 2012 Certificates............................................................................................ 4
Investment Considerations ..................................................................................................................................... 5
Other Information ................................................................................................................................................... 5
PLAN OF FINANCING ................................................................................................................................................ 6
Estimated Sources and Applications of Funds ....................................................................................................... 6
The 2012 Project .................................................................................................................................................... 6
Conversion of Series 2008A and Series 2008B Certificates .................................................................................. 6
Planned Redemption of Series 1993 Certificates ................................................................................................... 7
ANNUAL DEBT SERVICE REQUIREMENTS .......................................................................................................... 8
THE SERIES 2012 CERTIFICATES............................................................................................................................ 9
Description ............................................................................................................................................................. 9
Interest on the Series 2012 Certificates .................................................................................................................. 9
Redemption ............................................................................................................................................................ 9
Optional Redemption .................................................................................................................................... 9
Extraordinary Redemption ............................................................................................................................ 9
Mandatory Sinking Fund Redemption .......................................................................................................... 9
Notice of Redemption ................................................................................................................................. 10
Partial Redemption...................................................................................................................................... 11
Purchase in Lieu of Redemption ................................................................................................................. 11
Book-Entry Only System ..................................................................................................................................... 11
Limitation ............................................................................................................................................................. 13
Removal From the Book-Entry System................................................................................................................ 14
Legal Authority .................................................................................................................................................... 15
Investments ........................................................................................................................................................... 15
SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 CERTIFICATES ...................................... 15
Certificate Indenture ............................................................................................................................................. 15
Master Indenture................................................................................................................................................... 15
Limited Obligations .............................................................................................................................................. 18
Enforceability of Remedies .................................................................................................................................. 18
INVESTMENT CONSIDERATIONS ........................................................................................................................ 19
Introduction .......................................................................................................................................................... 19
General ................................................................................................................................................................. 19
Impact of Disruption in the Credit Markets and General Economic Factors ........................................................ 20
General ...................................................................................................................................................... 20
State Budgets .............................................................................................................................................. 20
Changes in Health Care Delivery ......................................................................................................................... 21
Certificate of Need Law ....................................................................................................................................... 21
Competition .......................................................................................................................................................... 21
Relations with Alternative Delivery Systems ....................................................................................................... 22
Dependence on Medicare and Medicaid............................................................................................................... 23
Nonprofit Healthcare Environment - Federal and State Actions .......................................................................... 23
General ...................................................................................................................................................... 23
Health Care Reform .................................................................................................................................... 24
Other Congressional Hearings and Legislation ........................................................................................... 24
Internal Revenue Service Initiatives and the New Form 990 ...................................................................... 25
Charitable Purposes Issues - Georgia .......................................................................................................... 26
Challenges to Real Property Exemptions .................................................................................................... 26
Indigent Care............................................................................................................................................... 26
Litigation Relating to Billing and Collection Practices............................................................................... 27
Payment Reform ......................................................................................................................................... 28
(i)
Page
Conclusion .................................................................................................................................................. 28
Federal Laws Affecting Health Care Facilities..................................................................................................... 28
ARRA ...................................................................................................................................................... 28
Federal Privacy Laws .................................................................................................................................. 29
Medicare and Medicaid Programs .............................................................................................................. 30
Patient Transfers ......................................................................................................................................... 31
The Medicare Program and Related Regulations ................................................................................................. 31
Introduction ................................................................................................................................................. 31
Inpatient Services - Reimbursement ........................................................................................................... 32
Outpatient Services - Reimbursement ......................................................................................................... 34
Provider-Based Standards ........................................................................................................................... 34
Physician Payments .................................................................................................................................... 34
Billing Investigations; Medicare Audits and Withholds ............................................................................. 35
Prepaid Plans............................................................................................................................................... 36
Federally Designated Professional Review Organization ........................................................................... 36
Provider and Employee Screening .............................................................................................................. 36
Conclusion .................................................................................................................................................. 36
Medicaid ............................................................................................................................................................... 37
General ...................................................................................................................................................... 37
Reimbursement Methodology ..................................................................................................................... 37
Disproportionate Share Payments ........................................................................................................................ 38
Regulatory and Contractual Matters ..................................................................................................................... 38
State Regulation .......................................................................................................................................... 38
Anti-Fraud and Abuse ................................................................................................................................. 38
Laws on Patient Referrals - Stark Law ....................................................................................................... 40
False Claims Laws ...................................................................................................................................... 41
Enforcement Affecting Clinical Research .................................................................................................. 42
Licensing, Surveys, Investigations, and Audits .................................................................................................... 43
Healthcare Professionals and Other Employees ................................................................................................... 43
Possible Staffing Shortages......................................................................................................................... 43
Employment Risks ...................................................................................................................................... 44
Wage and Hour Class Actions and Litigation ............................................................................................. 44
Insurance Regulation; Professional Liability; General Liability ................................................................. 44
Unfunded Pension Liability ........................................................................................................................ 45
Business Relationships ......................................................................................................................................... 45
Integrated Delivery System - Employed Physicians and Physician Groups ............................................... 45
Joint Ventures ............................................................................................................................................. 46
Physician Medical Staff .............................................................................................................................. 46
Worker Reclassification Audits .................................................................................................................. 47
Physician Shortages .................................................................................................................................... 47
Physician Recruitment and Referrals.................................................................................................................... 47
Antitrust ................................................................................................................................................................ 48
Affiliation, Merger, Acquisition, and Divestiture................................................................................................. 48
Environmental Requirements ............................................................................................................................... 48
Substitution of Security ........................................................................................................................................ 49
Prepayment Risks ................................................................................................................................................. 49
Hedging Transactions ........................................................................................................................................... 49
Requirements of Swap Counterparties and Holders of 2012 Bank Certificates ................................................... 49
Maintenance of Exempt Status ............................................................................................................................. 50
Limited Protection Against Loss of Tax Exemption ............................................................................................ 50
Possible Divestiture of Phoebe North ................................................................................................................... 51
Termination of Lease............................................................................................................................................ 51
THE AUTHORITY ..................................................................................................................................................... 51
Introduction .......................................................................................................................................................... 51
Governing Body ................................................................................................................................................... 52
THE COMBINED GROUP......................................................................................................................................... 52
Corporate Structure .............................................................................................................................................. 52
The Obligated Group ............................................................................................................................................ 52
Phoebe Putney Health System, Inc. ............................................................................................................ 52
Phoebe Putney Memorial Hospital, Inc. ..................................................................................................... 53
Phoebe North .............................................................................................................................................. 53
Certain Non-Obligated Group Members of the Combined Group ....................................................................... 54
Phoebe Worth Medical Center, Inc. ............................................................................................................ 54
Phoebe Sumter Medical Center, Inc............................................................................................................ 54
(ii)
Page
THE HOSPITAL ......................................................................................................................................................... 54
General Description of the Hospital ..................................................................................................................... 54
Lease..................................................................................................................................................................... 55
TAX EXEMPTION AND OTHER TAX MATTERS ................................................................................................ 55
Opinion of Bond Counsel ..................................................................................................................................... 55
State of Georgia Income Taxation ........................................................................................................................ 56
Pending Federal Legislation ................................................................................................................................. 56
Other Collateral Federal Tax Consequences ........................................................................................................ 57
LEGAL MATTERS .................................................................................................................................................... 58
Pending Litigation ................................................................................................................................................ 58
Validation Proceedings ......................................................................................................................................... 58
Legal Matters ........................................................................................................................................................ 59
Closing Certificates .............................................................................................................................................. 59
MISCELLANEOUS .................................................................................................................................................... 59
Ratings .................................................................................................................................................................. 59
Underwriting ........................................................................................................................................................ 59
Financial Advisor ................................................................................................................................................. 60
Independent Auditors ........................................................................................................................................... 60
Certain Relationships............................................................................................................................................ 61
Continuing Disclosure .......................................................................................................................................... 61
Additional Information ......................................................................................................................................... 61
APPENDIX A:
PHOEBE PUTNEY HEALTH SYSTEM .................................................................................. A-1
APPENDIX B:
FINANCIAL STATEMENTS OF PHOEBE PUTNEY HEALTH SYSTEM, INC. ................. B-1
APPENDIX C:
DEFINITIONS AND SUMMARIES OF PRINCIPAL DOCUMENTS .................................... C-1
APPENDIX D:
FORM OF LEGAL OPINION ................................................................................................... D-1
APPENDIX E:
FORM OF DISCLOSURE DISSMENINATION AGREEMENT ............................................. E-1
(iii)
[THIS PAGE INTENTIONALLY LEFT BLANK]
OFFICIAL STATEMENT
of the
relating to its
$107,900,000
REVENUE ANTICIPATION CERTIFICATES
(PHOEBE PUTNEY MEMORIAL HOSPITAL)
SERIES 2012
________________________________
INTRODUCTION
The purpose of this Official Statement, which includes the cover page and the Appendices hereto, is to furnish
certain information in connection with the sale by the Hospital Authority of Albany-Dougherty County, Georgia of
$107,900,000 in aggregate principal amount of its Revenue Anticipation Certificates (Phoebe Putney Memorial Hospital)
Series 2012 (the “Series 2012 Certificates”). Definitions of certain terms used in this Official Statement and not
otherwise defined herein are set forth in Appendix C to this Official Statement under the heading “DEFINITIONS OF
CERTAIN TERMS.”
This Introduction is not a summary of this Official Statement and is intended only for quick reference. It is only
a brief description of and guide to, and is qualified in its entirety by reference to, more complete and detailed
information contained in the entire Official Statement, including the cover page and the Appendices, and the documents
summarized or described herein. Potential investors should fully review the entire Official Statement. The offering of
the Series 2012 Certificates to potential investors is made only by means of the entire Official Statement, including the
Appendices hereto. No person is authorized to detach this Introduction from the Official Statement or to otherwise use it
without the entire Official Statement, including the Appendices hereto.
The Authority
The Hospital Authority of Albany-Dougherty County, Georgia (the “Authority”), the issuer of the Series 2012
Certificates, is a public body corporate and politic created and existing under the laws of the State of Georgia. For more
complete information, see “THE AUTHORITY” herein.
The Combined Group
Under a holding company structure with Phoebe Putney Health System, Inc. (the “System” or “PPHS”) as the
parent corporation, Phoebe Putney Memorial Hospital, Inc. (“PPMH”) and nine other entities as subordinate affiliates,
provide a variety of health care and related services. The System, PPMH, and affiliates of these corporations that may in
the future become obligated under the hereinafter described Master Indenture are referred to collectively in this Official
Statement as the “Obligated Group.” The Obligated Group and affiliates of the Obligated Group with respect to which
members of the Obligated Group may in the future agree to cause compliance with certain restrictions contained in the
Master Indenture are referred to collectively in this Official Statement as the “Combined Group.” For more complete
information, see “THE COMBINED GROUP” herein.
Certificate Trustee and Master Trustee
U.S. Bank National Association, Atlanta, Georgia, will act as trustee, as certificate registrar, and as paying agent
for the Series 2012 Certificates under the hereinafter described Certificate Indenture and U.S. Bank National Association
is the master trustee under the hereinafter described Master Indenture.
1
Purpose of the Series 2012 Certificates
The Authority will lend the proceeds of the Series 2012 Certificates to PPMH to finance or reimburse PPMH
for the costs of (i) making certain additions, extensions, and capital improvements to its health care system, including,
but not limited to, the acquisition of Palmyra Medical Center, a 248-bed acute care facility located in Albany, Georgia
(collectively, the “2012 Project”), and (ii) issuing the Series 2012 Certificates, pursuant to the terms of a Loan
Agreement (the “Loan Agreement”), dated as of December 1, 2012, between the Authority and PPMH. For more
complete information, see “PLAN OF FINANCING” herein.
The System
The Combined Group owns and operates a health care system known as the “Phoebe Putney Health System”
(the “System”), which is an integrated health care delivery system providing a full range of health services. The primary
facility of the System is Phoebe Putney Memorial Hospital (the “Hospital”), a 691-bed general acute care hospital on two
campuses located in Albany, Dougherty County, Georgia. Albany, Georgia, the fifth largest city in the State of Georgia,
is approximately 170 miles south of Atlanta, Georgia.
The System’s entire service area contains an estimated
population in excess of 349,000. The Hospital is the largest hospital in its service area. For more complete information,
see “THE SYSTEM” herein.
Security and Sources of Payment
for the Series 2012 Certificates
The Series 2012 Certificates are special limited obligations of the Authority payable from and secured by the
amounts pledged under an Indenture of Trust (the “Certificate Indenture”), dated as of December 1, 2012, between the
Authority and U.S. Bank National Association, as trustee (the “Certificate Trustee”).
The Series 2012 Certificates do not and will not constitute a debt, liability, general or moral obligation, or
pledge of the faith and credit or taxing power of the City of Albany, Georgia or Dougherty County, Georgia. No
governmental entity, including the City of Albany and Dougherty County, is obligated to levy any tax for the payment of
the Series 2012 Certificates. The Authority has no taxing power.
The Authority has previously issued its (i) Revenue Certificates (Phoebe Putney Memorial Hospital), Series
1993 in the aggregate principal amount of $36,715,000, of which $14,280,000 remains outstanding (the “Series 1993
Certificates”), (ii) Revenue Anticipation Certificates (Phoebe Putney Memorial Hospital) Series 2008A in the aggregate
principal amount of $54,225,000, of which $48,545,000 remains outstanding (the “Series 2008A Certificates”), (iii)
Revenue Anticipation Certificates (Phoebe Putney Memorial Hospital) Series 2008B in the aggregate principal amount
of $54,100,000, of which $48,460,000 remains outstanding (the “Series 2008B Certificates”), and (iv) Revenue
Anticipation Certificates (Phoebe Putney Memorial Hospital) Series 2010A in the aggregate principal amount of up to
$99,000,000, of which $97,830,000 is outstanding (the “Series 2010A Certificates” and together with the Series 1993
Certificates, the Series 2008A Certificates, and the Series 2008B Certificates, the “Prior Certificates”). See ‘PLAN OF
FINANCING” herein.
PPMH entered into a Master Trust Indenture dated as of March 1, 2002 (the “Master Indenture”) with U.S.
Bank, National Association (as successor to SunTrust Bank), as master trustee (in such capacity, the “Master Trustee”),
pursuant to which PPMH issued the Existing Certificates Obligation in the principal amount of $81,040,000 (the
“Existing Certificate Obligation”) pursuant to the Existing Certificates Supplement to Master Indenture as security for
the Series 1993 Certificates. PPMH previously issued the Series 2008A Obligation in the principal amount of
$54,225,000 (the “Series 2008A Obligation”) and the Series 2008B Obligation in the principal amount of $54,100,000
(the “Series 2008B Obligation”) pursuant to the Series 2008 Supplement to Master Indenture as security for the Series
2008A Certificates and the Series 2008B Certificates, respectively and the Series 2010A Obligation in the principal
amount of up to $99,000,000 (the “Series 2010A Obligation”) pursuant to the Series 2010 Supplement to Master
Indenture as security for the Series 2010A Certificates. The Existing Certificate Obligation, the Series 2008A
Obligation, the Series 2008B Obligation, and the Series 2010A Obligation are referred to collectively as the “Prior
Certificates Obligations.”
The Hospital will issue the Series 2012 Obligation in the same principal amount as the aggregate principal
amount of the Series 2012 Certificates (the “Series 2012 Obligation”) pursuant to the Series 2012 Supplement to Master
Indenture to secure the Series 2012 Certificates. The Series 2012 Obligation will rank on a parity with the Existing
Certificate Obligation, the Series 2008A Obligation, the Series 2008B Obligation, and the Series 2010A Obligation. To
the extent that the principal amounts of Prior Certificates or Series 2012 Certificates are paid by redemption or at
2
maturity, a corresponding amount of principal of the Obligation that secures such Certificates being paid is deemed to
have been paid, so that the principal amount of the outstanding Obligations that secure Certificates will always equal the
principal amount of the Certificates secured by each. It is expected that PPMH will provide its own funds sufficient to
cause the Series 1993 Certificates to be refunded and the Existing Certificates Obligation to be extinguished
approximately 30 days after the issuance of the Series 2012 Certificates; however, PPMH is not obligated to refund the
Series 1993 Certificates.
The Master Indenture provides for the creation of a group of entities called the Obligated Group, which are
jointly and severally liable for the payment of all obligations issued under the Master Indenture. Upon compliance with
certain conditions set forth in the Master Indenture, additional members may be added to the Obligated Group and
existing members may withdraw from the Obligated Group. The Master Indenture contains certain covenants of and
restrictions on the Obligated Group, relating to itself and its assets. The Master Indenture allows members of the
Obligated Group to designate certain of their affiliates as “Restricted Affiliates,” which are not directly liable for the
payment of any obligations issued under the Master Indenture. The Obligated Group has covenanted in the Master
Indenture to cause the Restricted Affiliates to comply with certain covenants and restrictions contained in the Master
Indenture. There are presently no Restricted Affiliates under the Master Indenture. Upon compliance with certain
conditions set forth in the Master Indenture, members of the Obligated Group may designate additional Restricted
Affiliates and existing Restricted Affiliates may be released from their obligations and status as Restricted Affiliates.
The Series 2012 Obligation will be a joint and several general obligation of the Obligated Group (subject, in the
case of guaranteed obligations, to the Maximum Guaranty Liability (as defined in “DEFINITIONS OF CERTAIN
TERMS” in Appendix C hereto)), secured under the Master Indenture by a pledge of the Gross Receipts (as defined in
“DEFINITIONS OF CERTAIN TERMS” in Appendix C hereto) of the Obligated Group. The Series 2012 Obligation
will be a direct obligation of PPMH guaranteed by each other member of the Obligated Group to the extent of its
respective Maximum Guaranty Liability. Although the Obligated Group has covenanted in the Master Indenture to cause
each Restricted Affiliate to transfer funds to the Obligated Group to satisfy its obligations under the Master Indenture,
there will be no direct recourse against any Restricted Affiliate under the Master Indenture, and no assets of any
Restricted Affiliate will be pledged to secure any obligations issued under the Master Indenture.
Under certain circumstances, the Master Indenture permits the Obligated Group to incur additional obligations
that will be equally and ratably secured under the Master Indenture on a parity basis with the Series 2012 Obligation, the
Series 2010A Obligation, the Series 2008A Obligation, the Series 2008B Obligation, and the Existing Certificates
Obligation.
To secure its obligations under the Series 2012 Certificates, the Authority will enter into the Certificate
Indenture with the Certificate Trustee, pursuant to which the Authority will assign to the Certificate Trustee all of its
right, title, and interest in and to the Series 2012 Obligation, the Loan Agreement (except for certain rights reserved to
the Authority), and all moneys and securities held by the Certificate Trustee in any and all of the funds and accounts
established under the Certificate Indenture. The Series 2012 Obligation will be registered in the name of the Certificate
Trustee and held by the Certificate Trustee for the benefit of the owners of the Series 2012 Certificates. The Certificate
Trustee, as the registered owner of the Series 2012 Obligation, will be entitled to the protection of the covenants,
restrictions, and other obligations imposed upon the Obligated Group by the Master Indenture.
Under the terms of the Certificate Indenture, the Series 2012 Certificates will be equally and ratably secured on
a parity basis, and no obligations other than the Series 2012 Certificates may be issued under or secured by the
Certificate Indenture.
For more complete and detailed information, see “SECURITY AND SOURCES OF PAYMENT FOR THE
SERIES 2012 CERTIFICATES” herein.
Description of the Series 2012 Certificates
Redemption. The Series 2012 Certificates are subject to optional redemption and extraordinary redemption
prior to maturity. For more complete information, see “THE SERIES 2012 CERTIFICATES - Redemption” herein.
Denominations. Series 2012 Certificates are issuable in denominations of $5,000 and any integral multiple
thereof.
Book-Entry Certificates. Each of the Series 2012 Certificates will be issued as fully registered certificates in
the denomination of one certificate per aggregate principal amount of the stated maturity thereof, and, when issued, will
3
be registered in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”), New York, New
York, an automated depository for securities and clearing house for securities transactions, which will act as securities
depository for the Series 2012 Certificates. Purchasers will not receive certificates representing their ownership interest
in the Series 2012 Certificates purchased. Purchases of beneficial interests in the Series 2012 Certificates will be made
in book-entry only form (without certificates), in authorized denominations, and, under certain circumstances as more
fully described in this Official Statement, such beneficial interests are exchangeable for one or more fully registered
certificates of like principal amount and maturity in authorized denominations. For more complete information, see
“THE SERIES 2012 CERTIFICATES - Book-Entry Only System” herein.
Payments. So long as DTC or its nominee, Cede & Co., is the registered owner of the Series 2012 Certificates,
payments of the principal of, premium, if any, and interest on the Series 2012 Certificates will be made directly to Cede
& Co., which will remit such payments to the DTC participants, which will in turn remit such payments to the beneficial
owners of the Series 2012 Certificates.
For a more complete description of the Series 2012 Certificates, see “THE SERIES 2012 CERTIFICATES”
herein.
Tax Exemption
In the opinion of Bond Counsel, under existing law and subject to conditions hereinafter described, interest on
the Series 2012 Certificates i) is (a) excludable from gross income for federal income tax purposes, (b) not an item of tax
preference in computing the federal alternative minimum tax (although, it is to be taken into account by certain
corporations as an adjustment to adjusted current earnings in determining alternative minimum taxable income) and
(c) exempt from present State of Georgia income taxation. See Appendix D hereto for the form of the opinion Bond
Counsel proposes to deliver in connection with the issuance of the Series 2012 Certificates. For a more complete
discussion of such opinion and certain other tax consequences of owning the Series 2012 Certificates, including certain
exceptions to the exclusion of the interest on the Series 2012 Certificates from gross income, see “TAX EXEMPTION
AND OTHER TAX MATTERS - Opinion of Bond Counsel and Collateral Federal Tax Consequences” herein.
Professionals Involved in the Offering
Certain legal matters pertaining to the Authority and its authorization and issuance of the Series 2012
Certificates are subject to the approving opinion of McKenna Long & Aldridge LLP, Atlanta, Georgia, Bond Counsel.
Copies of such opinion will be available at the time of delivery of the Series 2012 Certificates, and a copy of the
proposed form of such opinion is attached hereto as Appendix D. Certain legal matters will be passed upon for the
Authority by its counsel, Perry & Walters, LLP, Albany, Georgia, for the Obligated Group by its counsel, The Baudino
Law Group, Des Moines, Iowa, and Thomas S. Chambless, its Senior Vice President and General Counsel, and for the
Underwriters by their counsel, Peck, Shaffer & Williams LLP, Atlanta, Georgia. Hammond Hanlon Camp LLC and
H2C Securities, Inc., its wholly-owned subsidiary, have been employed as financial advisor to the Obligated Group in
connection with the issuance of the Series 2012 Certificates. The consolidated financial statements of the System as of
July 31, 2012 and 2011, and for the years then ended, included in this Official Statement as Appendix B, have been
audited by Draffin & Tucker, LLP, Albany, Georgia, independent auditors, as stated in their report thereon, which
appears in Appendix B hereto. See “MISCELLANEOUS - Independent Auditors” herein.
Legal Authority
The Series 2012 Certificates are being issued and secured pursuant to the authority granted by the laws of the
State of Georgia and pursuant to resolutions of the Authority authorizing the issuance of the Series 2012 Certificates,
adopted by the Board of Trustees of the Authority on November 8, 2012 and November 30, 2012. For more complete
information, see “THE SERIES 2012 CERTIFICATES - Legal Authority” herein.
Offering and Delivery of
the Series 2012 Certificates
The Series 2012 Certificates are offered when, as, and if issued by the Authority and accepted by the
Underwriters, subject to prior sale and to withdrawal or modification of the offer without notice. The Series 2012
Certificates in definitive form are expected to be delivered to the Certificate Trustee on behalf of DTC under the DTC
FAST system of registration on or about December 13, 2012.
4
Investment Considerations
There are certain considerations relating to an investment in the Series 2012 Certificates which are set forth in
this Official Statement under the caption “INVESTMENT CONSIDERATIONS” and which should be carefully
reviewed by prospective purchasers of the Series 2012 Certificates. See “INVESTMENT CONSIDERATIONS” herein.
Other Information
This Official Statement speaks only as of its date, and the information contained herein is subject to change.
This Official Statement contains forecasts, projections, and estimates that are based on current expectations but
are not intended as representations of fact or guarantees of results. If and when included in this Official Statement, the
words “anticipate,” “believe,” “budget,” “estimate,” “expect,” “intend,” “plan,” “forecast,” and similar words are
intended to identify forward-looking statements as defined in the Securities Act of 1933, as amended, and any such
statements inherently are subject to a variety of risks and uncertainties, which could cause actual results to differ
materially from those contemplated in such forward-looking statements. These forward-looking statements speak only
as of the date of this Official Statement. The Authority and the Combined Group disclaim any obligation or undertaking
to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in
the Authority or the Combined Group’s expectations with regard thereto or any change in events, conditions, or
circumstances on which any such statement is based.
In order to comply with Securities and Exchange Commission Rule 15c2-12, the Obligated Group has agreed
pursuant to a Disclosure Dissemination Agent Agreement dated as of December 1, 2012, with Digital Assurance
Certification, L.L.C., as dissemination agent, to provide certain financial information and operating data. See
“MISCELLANEOUS – Continuing Disclosure” herein.
This Official Statement and the Appendices hereto contain brief descriptions of, among other matters, the
Authority, the Combined Group, the System, the Series 2012 Certificates, the Certificate Indenture, the Master
Indenture, the Series 2012 Obligation, the Series 2010A Obligation, the Series 2008A Obligation, the Series 2008B
Obligation, and the Existing Certificates Obligation, the Loan Agreement, and the security and sources of payment for
the Series 2012 Certificates. Such descriptions and information do not purport to be comprehensive or definitive. The
summaries of various constitutional provisions and statutes, the Series 2012 Certificates, the Certificate Indenture, the
Master Indenture, the Series 2012 Obligation, the Series 2010A Obligation, the Series 2008A Obligation, the Series
2008B Obligation, and the Existing Certificates Obligation, the Loan Agreement, and other documents are intended as
summaries only and are qualified in their entirety by reference to such laws and documents, and references herein to the
Series 2012 Certificates and the Series 2012 Obligation, the Series 2010A Obligation, the Series 2008A Obligation, the
Series 2008B Obligation, and the Existing Certificates Obligation are qualified in their entirety to the forms thereof
included in the Certificate Indenture and the Master Indenture. Copies of the Certificate Indenture, the Master Indenture,
the Loan Agreement, and other documents and information are available, upon request and upon payment to Phoebe
Putney Memorial Hospital, Inc. of a charge for copying, mailing, and handling, from, Kerry L. Loudermilk, Senior Vice
President and Chief Financial Officer, 417 Third Avenue, Albany, Georgia 31703, telephone (229) 312-4068. During
the period of the offering of the Series 2012 Certificates, copies of such documents are available, upon request and upon
payment to the Underwriters of a charge for copying, mailing, and handling, from Merrill Lynch, Pierce, Fenner &
Smith, Incorporated One Bryant Park, New York, New York 10036, Attention: Robert Junqua, telephone (646) 743-1350
or 1221 McKinney Street, Suite 3330, Houston, Texas 77010, Attention: Stephen Claiborn, telephone (713) 658-1252.
[Remainder of page intentionally left blank]
5
PLAN OF FINANCING
Estimated Sources and
Applications of Funds
The sources and applications of funds in connection with the issuance of the Series 2012 Certificates are
estimated below.
Estimated Sources of Funds
Proceeds of Series 2012 Certificates
Net Original Issue Premium
Total Sources of Funds
$107,900,000
6,406,593
$114,306,593
Estimated Applications of Funds
$113,400,000
System Improvements1
906,593
Costs Issuance2
Total Applications of Funds
$114,306,593
________________________
1
See “2012 Project” below.
2
Includes legal and accounting fees, initial Certificate Trustee’s and Master Trustee’s fees, printing and engraving
costs, validation court costs, underwriting discount, Financial Advisor’s fees, and other costs of issuance.
The 2012 Project
The proceeds of the Series 2012 Certificates will be loaned to Phoebe Putney Memorial Hospital, Inc. (the
“Hospital”) and applied to fund or reimburse all or a portion of the costs of (i) renovations and improvements on or
adjacent to the campus of the Hospital located at 417 Third Avenue, Albany, Georgia, including the acquisition of
furniture, fixtures and equipment related thereto, (ii) acquisition of the acute care facility, formerly known as Palmyra
Medical Center and now operated as Phoebe North, (iii) renovations and improvements at Phoebe Northwest in the 2000
block of Dawson Road, Albany, Georgia, including the acquisition of furniture, fixtures and equipment related thereto,
(iv) construction, expansion, renovation and capital improvements to the Hospital’s facilities located in the 2000 block of
Meredyth Drive, 2000 block of Ray Knight Way and Nancy Lopez Lane, Albany, Georgia, (v) construction of a
distribution center on Lots 4A & 4B on Honeysuckle Drive, Albany, Georgia, (vi) construction, renovations and capital
improvements of an early childhood education center located at 2530 Lafayette Drive, Albany, Georgia, (vii) renovations
and improvements at Phoebe East located at 2410 Sylvester Road, Albany, Georgia, including the acquisition of
furniture, fixtures and equipment related thereto and (viii) acquisition of various computer, medical and other equipment
for the Hospital (collectively, the “2012 Project”). The projects described above include the following:
•
•
•
•
A three-story, 85,500 square foot, Digestive Health Center that includes 30 exam rooms, 10 triage rooms, three
clinical trial rooms, 26 prep/recovery bays and eight procedure rooms with an estimated cost of $32 million.
Renovation of the cardiac nursing units at an estimated cost of $4.9 million.
Telemetry monitoring system and TracemasterVue system upgrade at an estimated cost of $1.8 million
Imaging Center expansion at 2709 Meredyth Drive, Albany, GA with an estimated cost of $8 million.
In the event the final, unappealable outcome of the litigation described under “THE COMBINED GROUP –
The Obligated Group - Phoebe North” requires the divestiture of Phoebe North, the proceeds of the Series 2012
Certificates that were to be used to reimburse and refinance the cost of Phoebe North will be used for capital
improvements to the Hospital described above. PPMH has obtained from the Georgia Department of Community Health
all required certificates of need for the capital improvements described above. The improvements described above have
been designed and phased so that they will not significantly interfere with daily operations.
For a discussion of restrictions that apply to the use of the proceeds of the Series 2012 Certificates and the
amounts held in the Project Fund under the Certificate Indenture, see “THE INDENTURE – Revenues and Funds” in
Appendix C hereto
Conversion of Series 2008A and Series 2008B Certificates
On December 7, 2012, the interest rate on the Series 2008A Certificates and Series 2008B Certificates are
expected to be converted from a daily variable rate with security provided by bank letters of credit to a variable rate
6
based on a percentage of LIBOR plus a credit spread. The converted Series 2008A Certificates and Series 2008B
Certificates are to be purchased by Banc of America Public Capital Corp, an affiliate of Merrill Lynch, Pierce, Fenner &
Smith, Incorporated, one of the Underwriters of the Series 2012 Certificates. The converted certificates are hereinafter
referred to as the Series 2012 Bank Certificates. On December 7, 2022 Banc of America Public Capital Corp will have
the right to put the Series 2012 Bank Certificates to PPMH. See “INVESTMENT CONSIDERATIONS – Requirements
of Swap Counterparties and Holders of Bank Bonds” herein.
Planned Redemption of Series 1993 Certificates
PPMH plans to use its own funds to redeem the Series 1993 Certificates approximately 30 days following the
issuance of the Series 2012 Certificates; however, PPMH is not obligated to complete such redemption.
[Remainder of Page Intentionally Left Blank]
7
ANNUAL DEBT SERVICE REQUIREMENTS
Following are the annual debt service requirements for the Series 2012 Certificates and for the Prior
Certificates:
Year
Ending
December 1
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
TOTAL
Series 2012 Certificates
Principal or
Sinking Fund
Payments
Interest
Prior Certificates(1)
Principal or
Sinking Fund
Payments
Interest(2)(3)
Total Debt
Service Payments
$1,725,000
2,310,000
2,310,000
2,500,000
2,590,000
2,755,000
2,790,000
2,600,000
940,000
1,050,000
1,145,000
1,260,000
1,385,000
1,530,000
1,670,000
1,845,000
2,010,000
2,225,000
2,410,000
2,610,000
2,775,000
2,860,000
2,940,000
3,030,000
3,115,000
3,215,000
3,305,000
15,055,000
15,660,000
16,285,000
$4,099,138
4,205,988
4,159,788
4,067,388
3,992,388
3,862,888
3,725,138
3,613,538
3,535,538
3,488,538
3,446,538
3,389,288
3,326,288
3,257,038
3,195,838
3,112,338
3,056,988
2,956,488
2,889,738
2,814,425
2,729,600
2,618,600
2,504,200
2,386,600
2,265,400
2,140,800
2,012,200
1,880,000
1,277,800
651,400
$3,485,000
3,480,000
3,650,000
3,670,000
3,795,000
3,890,000
4,130,000
4,570,000
6,495,000
6,685,000
6,890,000
7,095,000
7,320,000
7,535,000
7,760,000
7,990,000
8,235,000
8,475,000
8,725,000
8,980,000
9,270,000
9,590,000
9,920,000
10,255,000
10,615,000
10,975,000
11,355,000
----
$7,064,192
6,942,601
6,818,815
6,700,492
6,558,962
6,427,241
6,290,589
6,154,254
5,963,626
5,712,920
5,452,332
5,191,796
4,903,291
4,615,888
4,311,736
3,987,352
3,634,934
3,278,947
2,909,452
2,533,306
2,159,979
1,870,103
1,570,228
1,263,753
939,360
607,476
264,275
----
$16,373,330
16,938,588
16,938,602
16,937,879
16,936,350
16,935,129
16,935,727
16,937,791
16,934,163
16,936,458
16,933,870
16,936,084
16,934,578
16,937,925
16,937,573
16,934,689
16,936,921
16,935,434
16,934,190
16,937,731
16,934,579
16,938,703
16,934,428
16,935,353
16,934,760
16,938,276
16,936,475
16,935,000
16,937,800
16,936,400
$107,900,000
$90,661,888
$194,835,000
$114,127,898
$507,524,786
(1)
Includes the Series 2008 and Series 2010 Certificates and excludes the Series 1993 Certificates, which PPMH plans
to redeem. See “INTRODUCTION – Security and Sources of Payment for the Series 2012 Certificates” and “PLAN
OF FINANCING” herein for a description of the Prior Certificates.
(2)
Based on an assumed average interest rate of 3.246% per annum with respect to a portion of the Series 2008
Certificates, 4.67% per annum with respect to a portion of the Series 2008 Certificates hedged with fixed payor swap
agreements, and 3.06% per annum with respect to the Series 2010A Certificates.
(3)
Takes into account the fixed payor swap agreements described in Note 12 “Derivative Financial Instruments” in the
audited financial statements included as Appendix B to this Official Statement and excludes the constant maturity
swaps.
8
THE SERIES 2012 CERTIFICATES
Description
The Series 2012 Certificates are being issued in the aggregate principal amount of $107,900,000. The Series
2012 Certificates, as initially issued, will be dated the Closing Date and will mature, subject to prior redemption and
acceleration upon the terms and conditions hereinafter described, on December 1 in the amounts and on the dates set
forth on the inside cover of this Official Statement. Interest on the Series 2012 Certificates will be payable semiannually
on each June 1 and December 1 (each an “Interest Payment Date”), commencing June 1, 2013
The Series 2012 Certificates will bear interest from the Interest Payment Date next preceding the date of
authentication thereof to which interest has been paid or duly provided for, unless such date of authentication is an
Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of authentication
thereof, or unless such date of authentication is prior to the first Interest Payment Date, in which event such Series 2012
Certificates will bear interest from the date of original authentication and delivery of the Series 2012 Certificates, until
the entire principal amount of the Series 2012 Certificates is paid; provided, that if at the time of authentication of any
Series 2012 Certificate interest is in default or overdue on the Series 2012 Certificates, such Series 2012 Certificate will
bear interest from the date to which interest has previously been paid in full or made available for payment in full on
Outstanding Series 2012 Certificates.
The Series 2012 Certificates are issuable only as fully registered certificates, without coupons. Series 2012
Certificates are issuable in denominations of $5,000 and any integral multiple thereof. Purchases of beneficial ownership
interests in the Series 2012 Certificates will be made in book-entry form and purchasers will not receive certificates
representing interests in the Series 2012 Certificates so purchased. If the book-entry system is discontinued, Series 2012
Certificates will be delivered as described in the Certificate Indenture, and Beneficial Owners will become the registered
owners of the Series 2012 Certificates. See “THE SERIES 2012 CERTIFICATES - Book-Entry Only System” herein.
Interest on the Series 2012 Certificates
The Series 2012 Certificates will bear interest from and including their dated date until payment of the principal
or redemption price thereof has been made or provided for, whether on the Maturity Date, upon redemption or otherwise.
Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Payment of interest will be
made on each Interest Payment Date for unpaid interest accrued during the Interest Period.
Redemption
Optional Redemption
The Series 2012 Certificates maturing on and after December 1, 2023 are subject to redemption by the
Authority, at the option of PPMH, in whole or in part in an Authorized Denomination at any time on or after
December 1, 2022, the maturities of Series 2012 Certificates to be redeemed to be selected by PPMH (and within any
maturity to be selected by DTC or any successor depository in accordance with its procedures or if the book-entry system
is discontinued, by lot or in such other manner as the Certificate Trustee determines), at the redemption price of 100% of
the principal amount thereof plus accrued interest to (but not including) the redemption date.
Extraordinary Redemption
The Series 2012 Certificates are subject to redemption in whole by the Issuer, at the option of PPMH, at a
redemption price of 100% of the Outstanding principal amount thereof plus accrued interest to (but not including) the
redemption date, in the event all or substantially all of the 2012 Project has been damaged or destroyed, or there occurs
the condemnation of all or substantially all of the 2012 Project or the taking by eminent domain of such use or control of
the 2012 Project as to render it, in the judgment of PPMH, unsatisfactory for its intended use for a period of time longer
than one year.
Mandatory Sinking Fund Redemption
The Series 2012 Certificates maturing on December 1, 2037 and December 1, 2042 are subject to mandatory
redemption prior to maturity, in part with the Series 2012 Certificates to be redeemed to be selected by the Securities
Depository in accordance with its procedures or, if the Book-Entry System has been discontinued, by lot, in such manner
as may be designated by the Certificate Trustee in its reasonable discretion, reasonably exercised, on the following dates
9
and in the following principal amounts at a redemption price of one hundred percent (100%) of the principal amount
thereof plus accrued interest to the redemption date, but without premium:
Series 2012 Certificates Maturing December 1, 2037
December 1
of the Year
Principal
Amount
2033
2034
2035
2036
$2,775,000
2,860,000
2,940,000
3,030,000
(Leaving $3,115,000 to mature December 1, 2037)
Series 2012 Certificates Maturing December 1, 2042
December 1
of the Year
Principal
Amount
2038
2039
2040
2041
$3,215,000
3,305,000
15,055,000
15,660,000
(Leaving $16,285,000 to mature December 1, 2042)
On or before 45 days prior to each sinking fund installment, the Certificate Trustee will select for redemption,
by lot in such manner as the Certificate Trustee determines, the principal amount of Series 2012 Certificates equal to the
applicable sinking fund installment. The amount of the applicable sinking fund installment for any particular date and
maturity may be reduced by the principal amount of any Series 2012 Certificates which prior to said date have been
redeemed (otherwise than through the operation of the sinking fund) and cancelled and not theretofore applied as a credit
against a sinking fund installment. Such reductions, if any, will be applied in such year or years determined by PPMH.
Notice of Redemption
Notice of the call for redemption will be given by the Certificate Trustee by mailing a copy of the redemption
notice (a) by first class mail at least 20 days but not more than 60 days prior to the date fixed for redemption to the
Owner of each Series 2012 Certificate to be redeemed in whole or in part at the address shown on the registration books
and (b) at least 10 days prior to the date fixed for redemption, to the Municipal Securities Rulemaking Board (“MSRB”)
in electronic format as prescribed by the MSRB (which, as of the date of this Indenture, is the Electronic Municipal
Market Access system (“EMMA”) of the MSRB. No defect in any notice delivered pursuant to clause (b) above or any
failure to give all or any portion of such notice will in any manner defeat the effectiveness of a call for redemption if
notice is given as prescribed in clause (a) above. Any notice mailed as described in this paragraph will be conclusively
presumed to have been duly given, whether or not the Owner or any other recipient receives the notice. Each notice of
redemption given hereunder will contain (i) information identifying the Series 2012 Certificates or portions thereof to be
redeemed (ii) the CUSIP numbers of all Series 2012 Certificates being redeemed; (iii) the date of issue of the Series 2012
Certificates as originally issued; (iv) the rate of interest borne by each Series 2012 Certificate being redeemed; (v) the
maturity date of each Series 2012 Certificate being redeemed; and (vi) any other descriptive information needed to
identify accurately the Series 2012 Certificates being redeemed; provided that no notice will be deemed defective if the
information required in clause (i) above is provided in such notice. The redemption of the Series 2012 Certificates may
be contingent or subject to such conditions as may be specified in the notice, and if funds for the redemption are not
irrevocably deposited with the Certificate Trustee or otherwise placed in escrow and in trust prior to the giving of notice
of redemption, the notice will be specifically subject to the deposit of funds by PPMH.
Failure to mail any such notice, or the mailing of defective notice, to any Owner, will not affect the proceeding
for redemption as to any Owner to whom proper notice is mailed.
10
Partial Redemption
If a Series 2012 Certificates is of a denomination larger than $5,000, a portion of such Series 2012 Certificate
($5,000 or any integral multiple thereof) may be redeemed, but only in the principal amount of $5,000 or any integral
multiple thereof.
Purchase in Lieu of Redemption
PPMH will have the option to cause the Series 2012 Certificates to be purchased in lieu of redemption on the
applicable redemption date at a price equal to the then applicable redemption price, plus accrued interest thereon to, but
not including, the date of such purchase. Such option may be exercised by delivery to the Certificate Trustee on or prior
to the business day preceding the redemption date of a written notice of PPMH specifying the Series 2012 Certificates
that will be subject to purchase in lieu of redemption with the moneys provided or to be provided by or on behalf of
PPMH. Upon delivery of such notice, the Series 2012 Certificates to which such notice applies will not be redeemed but
will be purchased at the redemption price on the date that would otherwise have been the redemption date.
Book-Entry Only System
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources
that the Authority and PPMH believe to be reliable, but neither the Authority nor PPMH take any responsibility for the
accuracy thereof.
The Series 2012 Certificates initially will be issued solely in book-entry form to be held in the book-entry only
system maintained by The Depository Trust Company (“DTC”), New York, New York. So long as such book-entry
system is used, only DTC will receive or have the right to receive physical delivery of the Series 2012 Certificates and,
except as otherwise provided herein with respect to tenders by beneficial owners of beneficial ownership interests,
beneficial owners will not be or be considered to be, and will not have any rights as, owners or holders of the Series 2012
Certificates under the Certificate Indenture.
The following information about the book-entry only system applicable to the Series 2012 Certificates has been
supplied by DTC. Neither the Authority nor the Certificate Trustee makes any representations, warranties or guarantees
with respect to its accuracy or completeness.
DTC will act as securities depository for the Series 2012 Certificates. The Series 2012 Certificates will be
issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other
name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued in
the aggregate principal amount of the Series 2012 Certificates and will be deposited with DTC at the office of the
Certificate Trustee on behalf of DTC utilizing the DTC FAST system of registration.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New
York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and
a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC
holds and provides asset servicing for over 3.5 million issues of U.S. and non U.S. equity issues, corporate and municipal
debt issues, and money market instruments from over 100 countries that DTC’s participants (“Direct Participants”)
deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities
transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct
Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants
include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”).
DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing
Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries.
Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers,
banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly (“Indirect Participants”). DTC is rated “AA+” by S&P. The DTC Rules
applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can
be found at http://www.dtcc.com and http://www.dtc.org.
11
Purchases of the Series 2012 Certificates under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Series 2012 Certificates on DTC’s records. The ownership interest of
each actual purchaser of each Series 2012 Certificate (“Beneficial Owner”) is in turn to be recorded on the Direct and
Indirect Participants’ records. Beneficial owners will not receive written confirmation from DTC of their purchase.
Beneficial owners are, however, expected to receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered
into the transaction. Transfers of ownership interests in the Series 2012 Certificates are to be accomplished by entries
made on the books of Direct and Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not
receive certificates representing their ownership interests in the Series 2012 Certificates, except in the event that use of
the book-entry system for the Series 2012 Certificates is discontinued.
To facilitate subsequent transfers, all of the Series 2012 Certificates deposited by Direct Participants with DTC
(or the Certificate Trustee on behalf of DTC utilizing the DTC FAST system of registration) are registered in the name of
DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of
DTC. The deposit of the Series 2012 Certificates with DTC (or the Certificate Trustee on behalf of DTC utilizing the
DTC FAST system of registration) and their registration in the name of Cede & Co. or such other DTC nominee do not
effect any change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the Series 2012
Certificates; DTC’s records reflect only the identity of the Direct Participants to whose accounts such the Series 2012
Certificates are credited, which may or may not be the beneficial owners. The Direct and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect Participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial owners of the Series 2012 Certificates may wish to take certain steps to augment the transmission to them of
notices of significant events with respect to the Series 2012 Certificates, such as redemptions, tenders, defaults, and
proposed amendments to the Bond documents. For example, beneficial owners of the Series 2012 Certificates may wish
to ascertain that the nominee holding the Series 2012 Certificates for their benefit has agreed to obtain and transmit
notices to beneficial owners. In the alternative, beneficial owners may wish to provide their names and addresses to the
Certificate Trustee and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Series 2012 Certificates are being redeemed,
DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2012
Certificates unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures,
DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2012 Certificates are
credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and interest payments on the Series 2012 Certificates will be made to Cede
& Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit
Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Certificate
Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants
to beneficial owners will be governed by standing instructions and customary practices, as is the case with the Series
2012 Certificates held for the accounts of customers in bearer form or registered in “street name” and will be the
responsibility of such Participant and not of DTC or its nominee, the Certificate Trustee or the Authority, subject to any
statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds,
distributions, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized
representative of DTC) is the responsibility of the Certificate Trustee, disbursement of such payments to Direct
Participants will be the responsibility of DTC, and disbursement of such payments to the beneficial owners will be the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Series 2012 Certificates at any
time by giving reasonable notice to the Authority or the Certificate Trustee. Under such circumstances, in the event that a
successor depository is not obtained, Bond certificates are required to be printed and delivered.
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The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor
securities depository). In that event, Series 2012 Certificates will be printed and delivered.
NEITHER THE AUTHORITY NOR THE CERTIFICATE TRUSTEE WILL HAVE ANY RESPONSIBILITY
OR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR ANY BENEFICIAL OWNER
OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATION BOOKS OF THE CERTIFICATE TRUSTEE
AS BEING A HOLDER WITH RESPECT TO: (1) THE SERIES 2012 CERTIFICATES; (2) THE ACCURACY OF
ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT; (3)
THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT
DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PURCHASE PRICE OF TENDERED THE SERIES
2012 CERTIFICATES OR THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE SERIES 2012
CERTIFICATES; (4) THE DELIVERY BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY
NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE
CERTIFICATE INDENTURE TO BE GIVEN TO HOLDERS; (5) THE SELECTION OF THE BENEFICIAL
OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE SERIES 2012
CERTIFICATES; OR (6) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS HOLDER.
Each Beneficial Owner for whom a Direct Participant or Indirect Participant acquires an interest in the Series
2012 Certificates, as nominee, may desire to make arrangements with such Direct Participant or Indirect Participant to
receive a credit balance in the records of such Direct Participant or Indirect Participant, to have all notices of redemption,
elections to tender the Series 2012 Certificates or other communications to or by DTC which may affect such Beneficial
Owner forwarded in writing by such Direct Participant or Indirect Participant, and to have notification made of all debt
service payments.
Beneficial owners may be charged a sum sufficient to cover any tax, fee, or other governmental charge that may
be imposed in relation to any transfer or exchange of their interests in the Series 2012 Certificates.
The Authority cannot and does not give any assurances that DTC, Direct Participants, Indirect Participants or
others will distribute payments of debt service on the Series 2012 Certificates made to DTC or its nominee as the
registered owner, or any redemption or other notices, to the beneficial owners, or that they will do so on a timely basis,
or that DTC, Direct Participants or Indirect Participants will serve and act in the manner described in this Official
Statement.
Limitation
For so long as the Series 2012 Certificates are registered in the name of DTC or its nominee, Cede & Co., the
Authority, PPMH and the Certificate Trustee will recognize only DTC or its nominee, Cede & Co., as the registered
owner of the Series 2012 Certificates for all purposes, including payments, notices and voting. So long as Cede & Co. is
the registered owner of the Series 2012 Certificates, references herein to the Holders or registered owners of the Series
2012 Certificates shall mean Cede & Co. and shall not mean the Beneficial Owners of the Series 2012 Certificates.
Because DTC is treated as the owner of the Series 2012 Certificates for substantially all purposes under the
Certificate Indenture, Beneficial Owners may have a restricted ability to influence in a timely fashion remedial action or
the giving or withholding of requested consents or other directions. In addition, because the identity of Beneficial
Owners is unknown to the Authority, PPMH, the Certificate Trustee or DTC, it may be difficult to transmit information
of potential interest to Beneficial Owners in an effective and timely manner. Beneficial Owners should make appropriate
arrangements with their broker or dealer regarding distribution of information regarding the Series 2012 Certificates that
may be transmitted by or through DTC.
Under the Certificate Indenture, payments made by the Certificate Trustee to DTC or its nominee shall satisfy
the Authority’s obligations under the Certificate Indenture and PPMH’s obligations under the Lease Agreement to the
extent of the payments so made.
None of the Authority, PPMH or the Certificate Trustee shall have any responsibility or obligation with respect
to:
•
the accuracy of the records of DTC, its nominee or any Direct Participant or Indirect Participant with
respect to any beneficial ownership interest in any Series 2012 Certificates;
13
•
the delivery to any Direct Participant or Indirect Participant or any other Person, other than a Holder, as
shown on the registration books maintained by the Certificate Trustee, of any notice with respect to any
Series 2012 Certificate including, without limitation, any notice of redemption with respect to any Series
2012 Certificate;
•
the payment to any Direct Participant or Indirect Participant or any other Person, other than a Holder, as
shown on the registration books maintained by the Certificate Trustee, of any amount with respect to the
principal or redemption price of, or interest on, any Series 2012 Certificate; or
•
any consent given by DTC or its nominee as registered owner.
Prior to any discontinuation of the book-entry only system hereinabove described, the Authority, PPMH and the
Certificate Trustee may treat Cede & Co. (or such other nominee of DTC) as, and deem Cede & Co. (or such other
nominee) to be, the absolute Holder of the Series 2012 Certificates for all purposes whatsoever, including, without
limitation:
(i)
the payment of the principal or redemption price of and interest on and the Series 2012 Certificates;
(ii)
giving notices of redemption and other matters with respect to the Series 2012 Certificates;
(iii)
registering transfers with respect to the Series 2012 Certificates; and
(iv)
the selection of Series 2012 Certificates for redemption.
The Authority and the Certificate Trustee cannot give any assurances that DTC or the Participants will
distribute payments of the principal or redemption price of and interest on the Series 2012 Certificates, paid to DTC or
its nominee, as the registered owner of the Series 2012 Certificates, or any redemption or other notices, to the Beneficial
Owners or that they will do so on a timely basis or that DTC will serve and act in the manner described in this Official
Statement.
So long as Cede & Co. is the registered owner of the Series 2012 Certificates, as nominee of DTC,
references in this Official Statement to the Holders of the Series 2012 Certificates shall mean Cede & Co. and
shall not mean the Beneficial Owners, and Cede & Co. will be treated as the only Bondholder of Series 2012
Certificates for all purposes under the Certificate Indenture.
The Authority may enter into amendments to the agreement with DTC or successor agreements with a successor
securities depository relating to the book-entry system to be maintained with respect to the Series 2012 Certificates
without the consent of Beneficial Owners or Bondholders.
Removal From the Book-Entry System
DTC may discontinue providing its services as securities depository with respect to the Series 2012 Certificates
at any time by giving written notice to the Authority, the Certificate Trustee and PPMH. The Authority or PPMH, with
the consent of the other, may terminate the services of DTC (or a successor securities depository). Upon the
discontinuance or termination of the services of DTC, unless a substitute securities depository is appointed, Series 2012
Certificates will be printed and delivered to the Beneficial Owners of the Series 2012 Certificates.
In the event the Series 2012 Certificates are removed from the Book-Entry System, the principal of and the
interest on the Series 2012 Certificates shall be payable to the persons in whose names the Series 2012 Certificates are
registered on the Bond Register on the applicable Record Date. Payments of interest on the Series 2012 Certificates shall
be made to the registered owner of the Series 2012 Certificates (as determined at the close of business on the Record
Date next preceding the applicable Interest Payment Date) by check mailed on the Interest Payment Date and the
principal amount of any Series 2012 Certificate and premium, if any, together with interest payable other than a regularly
scheduled Interest Payment Date, shall be made by check only upon presentation and surrender of the Series 2012
Certificate on or after its maturity date or date fixed for redemption or other payment at the office of the Certificate
Trustee; provided, however, that payment of principal of, premium, if applicable, and interest on any Series 2012
Certificate may be made by wire transfer as described above under the heading “Method of Payment.”
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Legal Authority
The Series 2012 Certificates are being issued and secured pursuant to the authority granted by (i) the
Constitution of the State of Georgia, (ii) Article 4 of Chapter 7 of Title 31 of the Official Code of Georgia Annotated,
known as the “Hospital Authorities Law” (the “Hospital Authorities Law”), and (iii) Article 3 of Chapter 82 of Title 36
of the Official Code of Georgia Annotated, known as the “Revenue Bond Law.”
The issuance, sale, and delivery of the Series 2012 Certificates and the execution, delivery, and performance of
the Certificate Indenture and the Loan Agreement by the Authority have been authorized and approved pursuant to
resolutions adopted by the Board of Trustees of the Authority on November 8, 2012 and November 30, 2012.
Investments
For a description of how the proceeds of the Series 2012 Certificates are to be invested pending their use, the
provisions governing those investments, and other provisions governing the investment of the proceeds of the Series
2012 Certificates and the amounts held to pay debt service on the Series 2012 Certificates, see “THE INDENTURE Investment of Moneys” in Appendix C hereto.
SECURITY AND SOURCES OF PAYMENT
FOR THE SERIES 2012 CERTIFICATES
Certificate Indenture
To secure its obligations under the Series 2012 Certificates, the Authority will enter into the Certificate
Indenture with the Certificate Trustee, pursuant to which the Authority will pledge and assign to the Certificate Trustee,
for the benefit of the owners of the Series 2012 Certificates, all of its right, title, and interest in and to (1) the Series 2012
Obligation, (2) the Loan Agreement (except for certain rights reserved to the Authority), and (3) all moneys and
securities held by the Certificate Trustee in any and all of the funds and accounts established under the Certificate
Indenture.
To evidence its obligation to repay the loan of the proceeds of the Series 2012 Certificates made pursuant to the
Loan Agreement, PPMH will execute and deliver to the Authority the Series 2012 Obligation issued under the Master
Indenture. To secure its obligations under the Series 2012 Certificates, the Authority will irrevocably assign the Series
2012 Obligation to the Certificate Trustee. The Series 2012 Obligation will be registered in the name of the Certificate
Trustee and held by the Certificate Trustee for the benefit of the owners of the Series 2012 Certificates. The Certificate
Trustee, as the registered owner of the Series 2012 Obligation, will be entitled to the protection of the covenants,
restrictions, and other obligations imposed upon the Obligated Group by the Master Indenture. See “SECURITY AND
SOURCES OF PAYMENT FOR THE SERIES 2012 CERTIFICATES - Master Indenture -- Series 2012 Obligation”
herein for a description of the Series 2012 Obligation.
The Certificate Indenture establishes with the Certificate Trustee a trust fund known as the Series 2012
Certificate Fund, into which the payments made under the Series 2012 Obligation must be deposited. See “THE
INDENTURE - Revenues and Funds” in Appendix C hereto.
Under the terms of the Certificate Indenture, no obligations other than the Series 2012 Certificates may be
issued thereunder or secured thereby. Additional obligations may, however, be issued under the Master Indenture.
Master Indenture
Parties. The System and PPMH have entered into the Master Indenture with the Master Trustee, pursuant to
which the Series 2012 Obligation will be issued and secured.
Obligated Group. The Master Indenture provides for the creation of a group of entities called the Obligated
Group, which are jointly and severally liable for the payment of all obligations issued under the Master Indenture. The
Obligated Group presently consists of the System and PPMH. Upon compliance with certain conditions set forth in the
Master Indenture, additional members may be added to the Obligated Group and existing members may withdraw from
the Obligated Group. See “THE MASTER INDENTURE - Admission into Obligated Group,” “- Withdrawal from
Obligated Group,” “- Conditions for Designation of Restricted Affiliates” and “Release of Restricted Affiliates”
Appendix C hereto.
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Series 2012 Obligation. Simultaneously with the issuance of the Series 2012 Certificates, in order to evidence
its obligation to repay the loan of the proceeds of the Series 2012 Certificates made pursuant to the Loan Agreement,
PPMH will execute and deliver to the Authority the Series 2012 Obligation issued under the Master Indenture. The
Series 2012 Obligation will be a joint and several general obligation of the Obligated Group (subject, in the case of
guaranteed obligations, to the Maximum Guaranty Liability). The Series 2012 Obligation will be a direct obligation of
PPMH guaranteed by each of the other members of the Obligated Group to the extent of their respective Maximum
Guaranty Liability. See “THE MASTER INDENTURE - Parity Obligations,” “- Security for Obligations,” and “- CrossGuaranties” in Appendix C hereto. The Series 2012 Obligation will be in the same aggregate principal amount, bear
interest at the same rates, mature on the same dates, and be subject to redemption on the same terms as the Series 2012
Certificates. The Series 2012 Obligation will obligate PPMH to make loan repayments directly to the Certificate Trustee
for the Authority’s account in amounts and at times calculated to be sufficient to pay, when due, the principal of,
premium, if any, and interest on the Series 2012 Certificates.
Pledge of Gross Receipts. Under the terms of the Master Indenture, the members of the Obligated Group will
pledge their Gross Receipts in order to secure the payment and performance of the obligations created under the Master
Indenture. See “DEFINITIONS OF CERTAIN TERMS” in Appendix C hereto for the definition of “Gross Receipts.”
The Master Indenture creates and establishes a trust fund of the Obligated Group that is required to be held in trust by the
Master Trustee. In order further to secure the timely payment of the Outstanding Obligations, the Obligated Group has
agreed in the Master Indenture that they will deposit daily, so far as practicable, all of the Gross Receipts into such trust
fund to be applied as provided in the Master Indenture. See “THE MASTER INDENTURE - Payment or Principal,
Premium, if any, and Interest, - Performance of Covenants,” and “- Pledge of Gross Receipts and Establishment of Gross
Receipts Account” in Appendix C hereto.
Limitations on Pledge of Gross Receipts. Certain interests and claims of others may be on a parity with or
prior to the pledge of the Gross Receipts made in the Master Indenture, and certain statutes and other provisions may
limit the Obligated Group’s right to make such pledges. Examples of such claims, interests, and provisions are:
(1)
statutory liens and rights of set-off,
(2)
the Georgia Uniform Commercial Code may not recognize a security interest in future revenues,
(3)
rights arising in favor of the United States of America or any agency thereof on failure of the Master
Trustee or the members of the Obligated Group to comply with federal or state statutes regarding the assignment of
certain claims,
(4)
constructive trusts, equitable liens, or other rights impressed or conferred by any state or federal court
in the exercise of its equitable jurisdiction,
(5)
state and federal bankruptcy or insolvency laws as they affect the enforceability of the security interest
in Gross Receipts earned by any member of the Obligated Group within the statutorily prescribed preference period
preceding and at any time after any effectual institution of bankruptcy proceedings by or against such member of
the Obligated Group,
(6)
as to those items in which a security interest, lien, or pledge can be perfected only by possession,
including items converted to cash, the rights of third parties in such items not in the possession of the Master
Trustee,
(7)
prohibitions against assignment contained in federal or state statutes including those governing the
Medicaid and Medicare programs,
(8)
provisions prohibiting the direct payment of amounts due to health care providers from Medicaid and
Medicare programs to persons other than such providers,
(9)
certain judicial decisions which cast doubt upon the right of the Master Trustee, in the event of
bankruptcy of any member of the Obligated Group, to collect and retain accounts receivable due such member from
Medicaid, Medicare, and other governmental programs,
(10) the security interest of third party creditors in “proceeds” of property subject to a Permitted Lien,
which “proceeds” may be deemed to constitute Gross Receipts,
16
(11) items not in possession of the Master Trustee, the records to which are located or moved outside the
State of Georgia, which are thereby not subject to or are removed from the operation of Georgia’s laws,
(12) claims that might arise if appropriate continuation statements are not filed in accordance with the
Georgia Uniform Commercial Code as from time to time in effect,
(13) the absence of an express provision permitting assignment of receivables due members of the
Obligated Group under contracts with third-party payors, and present or future prohibitions against assignment
contained in any applicable statutes or regulations, and
(14) commingling of Gross Receipts with other moneys of the members of the Obligated Group not so
pledged pursuant to the Master Indenture.
The pledge of the Gross Receipts may not be enforceable against third parties unless the Gross Receipts are actually
transferred to the Master Trustee.
Restricted Affiliates. The Master Indenture allows members of the Obligated Group to designate certain of
their affiliates as “Restricted Affiliates.” Initially, there are no Restricted Affiliates. Each member of the Obligated
Group has agreed in the Master Indenture to cause, to the extent permitted by law, its Restricted Affiliates to transfer to
the Obligated Group such of their property as shall be necessary to enable the Obligated Group to meet all of its joint and
several liability in respect of all obligations outstanding under the Master Indenture, in the maximum amount permissible
under the applicable fraudulent conveyance or similar laws. The Series 2012 Obligation will not, however, be a direct or
guaranteed obligation of any Restricted Affiliate and will not be secured by any pledge of or security interest in any
assets of any Restricted Affiliate. The Master Trustee will not have a direct claim upon and will not be able to directly
levy upon the assets of any Restricted Affiliate, since its interest in the Restricted Affiliates will be derived solely
through the members of the Obligated Group’s equity interest in the Restricted Affiliates. Both secured and unsecured
creditors of the Restricted Affiliates will be preferred in priority of payment and distribution to the Master Trustee since,
by levying upon the equity interest of the members of the Obligated Group in the Restricted Affiliates, the Master
Trustee will assume the payment priority of an equity owner of an entity (which is subordinate to the secured and
unsecured creditors of the entity) upon the liquidation of the Restricted Affiliates. The Master Indenture allows
Restricted Affiliates to be released from their obligations and status as “Restricted Affiliates” under the Master Indenture
upon the satisfaction of certain conditions. See “THE MASTER INDENTURE - “- Conditions for Designation of
Restricted Affiliates” and “Release of Restricted Affiliates” in Appendix C hereto.
Covenants. The Obligated Group has agreed in the Master Indenture to various operational and financial
covenants and restrictions upon the Obligated Group and the Restricted Affiliates, including, but not limited to,
limitations on the incurrence of additional indebtedness, maintenance of certain amounts of insurance, limitations on
mergers and transfers of assets, limitations on the creation of liens, maintenance of rates and charges at certain levels and
financial reporting. See “THE MASTER INDENTURE - General Covenants” in Appendix C hereto. The accounts and
financial results of the members of the Obligated Group and the Restricted Affiliates may be combined for financial
reporting purposes and for purposes of determining whether the various financial covenants and tests contained in the
Master Indenture are met. See “THE MASTER INDENTURE - General Covenants -- Financial Statements, Etc.” in
Appendix C hereto.
Parity Obligations. Under the terms of the Master Indenture, the Series 2012 Obligation will be equally and
ratably secured on a parity basis with the Existing Certificates Obligation, the Series 2008A Obligation, the Series 2008B
Obligation, and the Series 2010A Obligation. Upon satisfaction of certain conditions, the Master Indenture permits the
members of the Obligated Group, for specified purposes, to issue additional obligations without express limit as to
principal amount, which will be equally and ratably secured on a parity basis with the Series 2012 Obligation under the
Master Indenture. See “THE MASTER INDENTURE - General Covenants -- Permitted Additional Indebtedness” in
Appendix C hereto. Any additional parity obligations issued under the Master Indenture may be issued directly to a
lender on a taxable basis or may be used to secure tax-exempt obligations issued by the Authority or another
governmental body. The Obligated Group expects to issue additional parity obligations in the future to finance part of
the cost of ongoing capital improvements to the System. The issuance of additional parity obligations under the Master
Indenture may, for a period of time, dilute the security for the Series 2012 Obligation. Upon the issuance of the Series
2012 Certificates, the Certificate Trustee will hold less than a majority of obligations outstanding under the Master
Indenture, which may result in conflicts of interest between the Master Trustee and the Certificate Trustee.
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Limited Obligations
The Series 2012 Certificates are special limited obligations of the Authority payable from the amounts pledged
under the Certificate Indenture.
The Series 2012 Certificates do not and will not constitute a debt, liability, general or moral obligation, or
pledge of the faith and credit or taxing power of the City of Albany or Dougherty County. No governmental entity,
including the City of Albany and Dougherty County, is obligated to levy any tax for the payment of the Series 2012
Certificates. The Authority has no taxing power.
Enforceability of Remedies
The realization of any rights upon a default will depend upon the exercise of various remedies specified by the
Certificate Indenture and the Master Indenture. These remedies may require judicial actions, which are often subject to
discretion and delay and which may be difficult to pursue. The enforceability of rights or remedies with respect to the
Series 2012 Certificates and the Series 2012 Obligation may be limited by state and federal laws, rulings, and decisions
affecting remedies and by bankruptcy, insolvency, or other laws affecting creditors’ rights or remedies heretofore or
hereafter enacted. Under existing law (including particularly federal bankruptcy law), certain remedies specified by the
Certificate Indenture or the Master Indenture may not be readily available or may be limited. A court may decide not to
order the specific performance of the covenants contained in the Certificate Indenture or the Master Indenture.
Section 36-80-5 of the Official Code of Georgia Annotated provides that no authority created under the
Constitution or laws of the State of Georgia shall be authorized to file a petition for relief from payment of its debts as
they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or
otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and
public agencies and instrumentalities. Section 36-80-5 of the Official Code of Georgia Annotated also provides that no
chief executive or other governmental officer, governing body, or organization shall be empowered to cause or authorize
the filing by or on behalf of any authority created under the Constitution or laws of the State of Georgia of any petition
for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute
providing for such relief or composition or otherwise to take advantage of any federal statute providing for the
adjustment of debts of political subdivisions and public agencies and instrumentalities. Section 36-80-5 of the Official
Code of Georgia Annotated does not apply to any members of the Obligated Group.
The joint and several liability assumed by the members of the Obligated Group, other than PPMH, pursuant to
the Master Indenture raises questions under federal bankruptcy law and the Georgia fraudulent conveyance statutes as to
whether a claim based upon the Master Indenture may be subordinated to the claims of other creditors in the event of
bankruptcy or avoided, in the event of insolvency, by other creditors or the Certificate Trustee in bankruptcy. Under the
applicable laws, a trustee in bankruptcy or a creditor may avoid any obligation incurred by a related obligor or guarantor
if, among other bases therefor, (1) the obligor or guarantor has not received fair consideration or reasonably equivalent
value in exchange for the obligation and (2) the obligation renders the guarantor or obligor insolvent or the obligor or
guarantor is undercapitalized or unable to pay its debts.
Application by courts of the tests of “insolvency,” “fair consideration,” and “reasonably equivalent value” has
resulted in a conflicting body of case law. It is possible that in an action involving the enforceability of the Master
Indenture against a member of the Obligated Group (insofar as it applies to the obligations described above), a court
might not enforce the Master Indenture in the event it is determined that sufficient consideration for the member’s
obligation was not received by such obligor or guarantor or that the incurrence of the obligation represented by the
Master Indenture has rendered or will render the obligor or guarantor insolvent or unable to pay its debts.
If any member of the Obligated Group were to file a petition for relief under federal bankruptcy law, the filing
would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against that
member of the Obligated Group and its property and as an automatic stay of any act or proceeding to enforce a lien upon
its property. If the bankruptcy court so ordered, that member’s property, including its Gross Receipts, could be used for
the benefit of that member despite the claims of the Master Trustee with respect to the Master Indenture. If a bankruptcy
court concludes that the Certificate Trustee has “adequate protection,” it may (1) substitute other security for the property
subject to the lien of the Master Indenture and (2) subordinate the lien of the Master Indenture (a) to claims by persons
supplying goods and services to the particular member of the Obligated Group after bankruptcy and (b) to the
administrative expenses of the bankruptcy proceeding.
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In a bankruptcy proceeding, the particular member of the Obligated Group could file a plan for the adjustment
of its debts which modifies the rights of creditors generally, or any class of creditors, secured or unsecured. The plan,
when confirmed by the court, would bind all creditors who had notice or knowledge of the plan and would discharge all
claims against the particular member of the Obligated Group provided for in the plan. No plan may be confirmed unless,
among other conditions, the plan is in the best interests of creditors, is feasible, and has been accepted by each class of
claims impaired thereunder. Each class of claims will have accepted the plan if at least two-thirds in dollar amount and
more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its
favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with
respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly in favor of junior
creditors. In addition, federal bankruptcy law permits the adoption of a reorganization plan even though the plan has not
been accepted by the owners of a majority in aggregate principal amount of the obligations outstanding under the Master
Indenture, if such owners are provided with the value of their claim or the “indubitable equivalent” thereof.
In the event of bankruptcy of a particular member of the Obligated Group, the amount realized by the
Certificate Trustee might depend on a federal bankruptcy court’s interpretation of “indubitable equivalent” and
“adequate protection” under the then existing circumstances. A bankruptcy court may also have the power to prevent the
exercise of remedies arising under certain provisions of the Master Indenture that make bankruptcy and related
proceedings by any member of the Obligated Group an event of default thereunder.
The various legal opinions to be delivered concurrently with the delivery of the Series 2012 Certificates will be
qualified as to the enforceability of the various legal instruments by limitations imposed by state and federal laws,
rulings, and decisions affecting remedies and by bankruptcy, insolvency, reorganization, fraudulent conveyance, or other
similar laws affecting the enforcement of creditors’ rights generally.
INVESTMENT CONSIDERATIONS
Introduction
In analyzing the Series 2012 Certificates and in order to make an informed investment decision, potential
investors should carefully consider the following investment considerations prior to making a decision to purchase the
Series 2012 Certificates. The following investment considerations are not intended to be exhaustive of the general or
specific investment considerations relating to the purchase of the Series 2012 Certificates. Additional investment
considerations relating to the purchase of the Series 2012 Certificates are described throughout this Official Statement,
whether or not specifically designated as investment considerations.
The following investment considerations do not include a description of issues that may arise with respect to
entities that do not comprise the Combined Group, including, without limitation, Phoebe Worth Medical Center, Inc.,
Phoebe Sumter Medical Center, Inc., Phoebe Dorminy Medical Center, Inc., Phoebe Putney Health Ventures, Inc.,
Phoebe Foundation, Inc., and Phoebe Putney Indemnity, LLC. These entities are related to members of the Combined
Group and each of their financial health and compliance with applicable laws and regulations may impact the Combined
Group.
General
Future revenues and expenses of the Combined Group are subject, among other things, to the capabilities of
management of the Combined Group and future economic and other conditions that are not accurately predictable and
that may adversely affect revenues and the timely payment of principal of and interest on the Series 2012 Certificates.
Conditions that may adversely affect the revenues and expenses include: (a) termination or restriction of governmental
financial reimbursement and payments to hospitals, including the Medicare and Medicaid programs; (b) changes in
reimbursement and payments made to hospitals by agencies, both governmental and private, that provide such
reimbursement and payments; (c) a reduced demand for hospital services arising from, among other things, future
medical and other scientific advances, improved health levels, improved occupational health and safety standards, and
greater preventive medicine and outpatient care; (d) the failure of the Combined Group to achieve and maintain a
sufficient number of patient days and a sufficient occupancy rate at the System; (e) the failure of the Combined Group to
contain its operating expenses; (f) changes in the regulation of hospitals by governmental entities, including the
regulation of rates and the regulation of facilities and services; (g) the professional and personnel relationships of the
staff and employees; (h) changes in the population or economic conditions of the service area of the System; (i)
competition arising from other hospitals and other health care facilities, such as skilled care nursing home facilities, and
other health care providers in the service area of the System; (j) shortages of nurses and skilled technicians; (k)
19
community acceptance, adverse publicity, and adverse public relations; (l) the failure of the Combined Group to be able
to provide services required or expected by patients; (m) physicians’ confidence in and utilization of the facilities of the
System; and (n) changes in the number and composition of the medical staff within the System. Many of these
conditions, and the effects they could have on the Combined Group, are more fully discussed below.
Impact of Disruption in the Credit Markets
and General Economic Factors
General
The domestic and international financial crisis that began in 2008 has had, and is expected to continue to have,
negative repercussions upon the national and global economies, including a scarcity of credit, lack of confidence in the
financial sector, extreme volatility in the financial markets, increase in interest rates, reduced business activity, increased
consumer bankruptcies, and increased business failures and bankruptcies. In response, President Barack Obama, on
February 17, 2009, signed the American Recovery and Reinvestment Act of 2009 (“ARRA”), which provided
approximately $787 billion in federal spending and tax initiatives. The U.S. Congress, the Federal Reserve Board and
other agencies of the federal government, and foreign governments have taken various actions that are designed to
enhance liquidity, improve the performance and efficiency of credit markets, and generally stabilize securities markets
and stimulate spending. There has been no agreement that these actions have been effective, and there can be no
assurance these actions will be effective in the future. Additionally, the enactment of the federal Patient Protection and
Affordable Care Act (“PPACA”) on March 23, 2010, and its companion amendment, the Health Care and Education
Affordability Reconciliation Act of 2010 (the “Reconciliation Amendment”) bring significant changes to the healthcare
industry. These statutes are still in the process of being implemented. Thus, the full effects of regulations promulgated
pursuant to the PPACA or of the repeal of the PPACA cannot be known at this time.
The current economic environment could have a material adverse effect on the financial condition of many
hospitals, including the Combined Group. The financial crisis had a particularly acute impact upon the financial sector
and has caused many banks and other financial institutions to seek additional capital, to merge, and in some cases, to fail.
Additionally, there have been periods of time in which there has been a lack of liquidity for the purchase of variable rate
bonds due to the withdrawal of substantial amounts from tax-exempt money market funds, one of the largest purchasers
of variable rate tax-exempt bonds.
The members of the Combined Group have significant holdings in a broad range of investments. Market
fluctuations have affected and will continue to affect materially the value of those investments and those fluctuations
may be and historically have been material. The market disruption exacerbated the market fluctuations and negatively
affected over certain time periods the investment performance of securities in the Combined Group members’ portfolios.
Investment income (including both realized and unrealized gains on investments) has contributed significantly to the
Combined Group members’ financial results over recent years. Past market conditions significantly reduced the
Combined Group members’ investment income and had a material adverse effect on the Combined Group members’
financial results during those periods. For specific information about the Combined Group’s recent results of operations,
see “OPERATING AND FINANCIAL DATA - Summary of Combined Revenues and Expenses” in Appendix A hereto.
State Budgets
The general negative economic outlook for states and the resulting budget shortfalls have created significant
financial issues for states. Many states face severe financial challenges, including erosion of general fund tax revenues.
The financial challenges facing states, including the State of Georgia, may negatively impact hospitals in a number of
ways, including but not limited to, a greater number of indigent patients and a greater number of individuals who qualify
for Medicaid and/or reductions in Medicaid reimbursement rates. With implementation of the PPACA, it is anticipated
that the number of Medicaid eligible enrollees will increase, thus potentially causing additional financial strain on states’
budgets.
During the 2010 legislative session of the Georgia General Assembly, the Georgia House and Senate, after
much discussion and debate, passed House Bill 307, known as the “Provider Payment Agreement Act” (“H.B. 307”).
H.B. 307 became effective July 1, 2010. H.B. 307 provides for a 1.45% provider fee assessed on net patient revenues of
hospitals and certain ambulatory surgery centers (also referred to as a “bed tax”). Pursuant to H.B. 307, the bed tax will
automatically sunset on June 30, 2013. The bed tax is used to offset Medicaid reimbursement increases to hospitals and
for payments for Medicaid services. Management of the Combined Group has determined that H.B. 307 to date has had
an insignificant impact on the financial condition and operations of the members of the Combined Group, but there can
20
be no assurance that the impact will not increase materially in the future. It is unclear whether the Georgia General
Assembly will allow the tax to sunset or will revise or renew the bed tax.
Changes in Health Care Delivery
Efforts by insurers, Alternative Delivery Systems (as defined below), and governmental agencies to control and
reduce the costs of health care services and to reduce utilization of health care facilities by such means as preventive
medicine, vigorous utilization review and case management (such as discouraging hospital admissions unless absolutely
necessary), increased competition among health care providers, improved standards of occupational health and safety,
outpatient care, and support of health maintenance organizations and preferred provider organizations could have an
adverse impact upon revenues of the System. In addition, scientific and technological advances, new procedures, drugs
and appliances, preventive medicine, occupational health and safety and outpatient health care delivery may reduce
utilization and revenues of the Combined Group in the future. Technological advances in recent years have accelerated
the trend toward the use of sophisticated and often costly diagnostic and treatment equipment in hospitals, the
availability of which may be a significant factor in hospital utilization. The ability of the Combined Group to operate
successfully over the life of the Series 2012 Certificates may depend upon its ability to finance, acquire, and support
additional capital equipment, replacements, and improvements, which may be affected by the availability of equipment
or specialists trained to utilize such equipment, legislation, regulations, and applicable principles of government program
reimbursement.
Certificate of Need Law
Under the Georgia State Health Planning and Development Act, a certificate of need (“CON”) program is
administered by the Georgia Department of Community Health’s Office of General Counsel (“DCH”). Georgia’s CON
program regulates various types of activities and expenditures made by or on behalf of health facilities, including
hospitals, to prevent unnecessary duplication of expensive health care services in an effort to contain health care costs.
Georgia’s CON program requires, among other things, DCH’s review prior to construction of a new health care facility,
a capital expenditure above certain levels, an increase in bed capacity, the establishment of a new clinical health service,
the conversion or upgrade to a specialty hospital, or an expenditure involving the purchase of diagnostic or therapeutic
equipment above certain levels. DCH’s review is based on a variety of statutory requirements, including a finding of
community need for additional health care facilities and services. The Combined Group has received a CON, if required,
for all of its current activities. See “PLAN OF FINANCING - The 2012 Project” herein. There can be no assurance that
the Combined Group will receive CONs that may be required for future capital expenditures or new services. In
addition, the statutory and regulatory requirements under the Georgia CON program may be amended in the future in
ways that are adverse to the Combined Group. The Georgia CON program has established CON requirements for multispecialty ambulatory surgery centers, which often compete or may compete with the Combined Group to provide
outpatient surgical services. Such centers currently must obtain a CON from DCH prior to constructing such a center
and offering outpatient surgical services. On December 10, 2009, DCH proposed rules that would effectively
marginalize the requirement that these centers obtain a CON to offer outpatient surgical services. DCH postponed
consideration of these rules, and DCH has indicated that it does not intend to adopt the rules. However, if these rules
become final, they would allow competitors of the Combined Group to open such centers after undergoing a
substantially simplified CON review process with little possibility of being denied.
In its current form, the CON Law may limit or even prevent the Combined Group from undertaking certain
activities and expenditures that are financially advantageous, including the acquisition of new, sophisticated diagnostic
and treatment equipment. At the same time, the CON Law may allow competitors to undertake activities or expenditures
for which the Combined Group has been denied a certificate of need. In addition, the Combined Group may be required
to incur substantial expenditures in order to obtain a certificate of need for any future activities, including consulting fees
and legal fees for preparation of applications, review of competing applications, preparation of written comments, and
participation in public hearings, administrative hearings, litigation, and appeals. For all of these reasons, the CON Law
and regulations could adversely affect the financial condition of the Combined Group.
Competition
The business engaged in by the Combined Group can be highly competitive. For a summary of hospitals which
exist in the area of competition of the System, see “COMPETITION” in Appendix A hereto. No assurance can be given
that other competitive facilities or services will not be established or that existing competitive facilities will not be
expanded or renovated in the System’s service area in the future.
21
The principal methods of competition in the hospital industry include, but are not necessarily limited to, daily
rates charged, services available in relation to patient needs, and the quality and attractiveness of physical facilities
provided. Management of the Combined Group believes that the System can effectively compete with other facilities
currently located in its area of competition. However, investment by the Combined Group in facilities and equipment for
capital-intensive services may be lost as a result of rapid changes in diagnosis, treatment, or clinical practice brought
about by new technology or new pharmacology. There can be no guarantee that in the future the System will be able to
compete with hospitals designed and built with the benefit of advanced technology and services not available at the time
the System was constructed and hospitals that are perceived to offer more attractive facilities and services.
Although the operation of the Georgia CON program may present a barrier, to some extent, to competition from
new hospital facilities, such determinations could be erroneous and thus could lead to unnecessary competing facilities.
Furthermore, no CONs are required for expansion of the licensed bed capacity of existing facilities which have
maintained occupancy rates in excess of 75% for the previous 12 months, by up to 10 beds or 10% of licensed capacity,
whichever is greater, in any consecutive two-year period. Also, presently in Georgia no CON is required for ambulatory
surgery centers established by single-specialty physician practices, provided total capital costs incurred thereby are
below a given threshold amount and/or the practice meets other requirements. In addition, the Georgia CON program is
no protection against a reduction in bed need due to demographic or other changes.
The System may also face competition from other forms of health care delivery that could offer comparable
health care services at lower prices to the same population served by the System, such as free-standing ambulatory care
clinics or surgical centers, private laboratories, radiological service providers or other imaging providers, rehabilitation
and therapy centers, home health care, and preventive care agencies. Existing and potential competitors may not be
subject to the same restrictions applicable to the Combined Group, and future competition may arise from new sources
not currently anticipated or prevalent.
Relations with Alternative Delivery Systems
In recent years, increased sensitivity to the cost of health care and the desire to reduce health care costs have
increased enrollment in health maintenance organizations, preferred provider organizations, and other managed care
delivery systems (“Alternative Delivery Systems”). Such organizations have become significant purchasers of health
care services from hospitals and other providers, often selecting providers that offer the most cost-effective services and
hospitals and providers must be able to provide the contracted services without significant operating losses, which may
require multiple forms of cost containment. Alternative Delivery Systems commonly have replaced indemnity insurance
as the prime source of non-governmental payment for hospital services. Additionally, Medicare and Medicaid may now
also purchase hospital services using managed care options.
The growth of Alternative Delivery Systems has adversely affected hospitals in a number of ways. Most
preferred provider organizations offer financial incentives for subscribers to use only those hospitals that have contracted
with the plan. Most health maintenance organizations limit coverage to services provided by hospitals with which they
have contracted, effectively directing patients away from hospitals with which they have not contracted. Alternative
Delivery Systems have been able to negotiate discounts or more favorable rates for health care services from competing
providers and have directed their subscribers to providers that offer the lowest rates for particular hospital services.
Additionally, the market for Alternative Delivery Systems has become increasingly competitive and many of the
Alternative Delivery Systems are consolidating, while others may not survive. In such instance, if the Combined Group
has contracted with an Alternative Delivery System that is either involved in a consolidation or does not survive, the
Combined Group may be responsible for providing services for which the Combined Group may not ultimately be
compensated. With the passage of the PPACA, which assesses fees and taxes on Alternative Delivery Systems as well
as imposes other changes in how Alternative Delivery Systems operate, the relationship between the Combined Group
and Alternative Delivery Systems may require renegotiation, but the Combined Group cannot predict the full effects of
the PPACA at this time as the law has not yet been fully implemented.
Most Alternative Delivery Systems currently pay hospitals on a discounted fee for service basis or a discounted
fixed rate per day of care. A hospital is usually required to discount its charges substantially to obtain a contract to serve
the patients of an Alternative Delivery System. The discounts offered to Alternative Delivery Systems may result in
payment at less than actual costs, and the volume of patients directed to a hospital under a contract with an Alternative
Delivery System may vary significantly from the anticipated volume. Some health maintenance organizations employ a
“capitation” payment method under which the hospital is paid a predetermined periodic rate for each enrollee in the
health maintenance organization who is “assigned” to or otherwise directed to receive care at a particular hospital. In a
capitation payment system, the hospital assumes a substantial financial risk for the cost and scope of care given to such
22
health maintenance organization’s enrollees. If the capitation payment is insufficient to meet the hospital’s costs of care,
the financial condition of the hospital may erode. Further, pursuant to state insurance regulations, health maintenance
organization contracts require that the hospital provide care for health maintenance organization enrollees for a certain
period of time regardless of whether the health maintenance organization has funds to make payments to the hospital. In
cases where a health maintenance organization is a major purchaser of services from a particular hospital, a contract rate
reduction, contract cancellation, inability to pay, business failure, or bankruptcy of the health maintenance organization
may have a substantial negative effect on the hospital’s financial condition. Hospitals also from time to time have
disputes with Alternative Delivery Systems concerning payment and contract interpretation issues.
The Combined Group has a number of contracts with certain Alternative Delivery Systems and receives an
increasing portion of its revenues from Alternative Delivery Systems. For its fiscal year ended July 31, 2011
approximately 5% of the hospital portion of the System’s gross patient service revenue was attributable to patients
enrolled by Alternative Delivery Systems. See “OPERATING AND FINANCIAL DATA – Sources of Combined Gross
Patient Service Revenues” in Appendix A hereto. Renegotiation of the discount formulas in those contracts may reduce
reimbursement to the Combined Group, and there is no assurance that the Combined Group will retain such contracts in
the future or obtain other contracts of like kind. Failure to execute and maintain such contracts could have the effect of
reducing the System’s patient base and gross revenues. On the other hand, although participation may maintain or
increase the patient base, it may also result in reduced payments and lower net income.
Dependence on Medicare and Medicaid
Profitable operation of the System is and will be dependent upon a federally funded reimbursement system for
the elderly and disabled known as Medicare. Approximately 43.8% of the hospital portion of the System’s gross patient
service revenue for its fiscal year ended 2012 was attributable to Medicare patients. It is unlikely that the System could
ever attract sufficient numbers of private pay patients to become totally self-sufficient without reimbursements from the
Medicare program. See “OPERATING AND FINANCIAL DATA – Sources of Combined Gross Patient Service
Revenues” in Appendix A hereto.
To a lesser extent, the System also is and will be dependent upon payments made under a cost-related
reimbursement system for the medically indigent under the Georgia Medicaid program administered by the Georgia
Department of Medical Assistance. Approximately 19.2% of the hospital portion of the System’s gross patient service
revenue for fiscal year ended 2012 was attributable to Medicaid patients. This program is funded by the State of
Georgia, which receives reimbursement for part of its cost from the federal government, provided that the state
administered program and the System and its operations meet federally imposed standards for reimbursement. See “THE
SYSTEM - Sources of Revenue” herein for a discussion of the Medicaid reimbursement system.
The amount and frequency of payments under the federal Medicare program and the federal-state Medicaid
program are subject to legislative changes, administrative rulings, interpretations of policy, determinations and
processing delays by intermediaries implementing reimbursement procedures, retroactive payment adjustments, and
governmental funding restrictions, any or all of which may materially decrease the revenues and cash flow of the System
and the Combined Group.
There can be no guarantee that the federal government or the State of Georgia will not terminate or substantially
change or curtail the Medicare and Medicaid reimbursement programs, and such a change could, and any termination or
curtailment probably would, have an adverse effect upon the System and the Combined Group. See below for further
discussion of the Medicare and Medicaid Programs and their impact on the Combined Group.
Nonprofit Healthcare Environment - Federal and State Actions
General
The Combined Group is subject to regulation by a number of governmental agencies, including those that
administer the Medicare and Medicaid programs, federal, state, and local agencies responsible for the administration of
health planning programs, and is subject to federal, state, and local laws, regulations, rulings, and court decisions relating
to their organization and operation, including their operation for charitable purposes. There can often be tension between
the rules designed to regulate a wide range of charitable organizations and the day-to-day operations of an Integrated
Delivery System (as defined below) such as the Combined Group. As a result, the Combined Group is sensitive to
legislative and regulatory changes in and limitations on governmental spending for the governmental programs which
affect it, and the constant shifts in laws and regulations may be detrimental to the Combined Group and its financial
condition. The rapidly rising cost of health care and the consequent drain on the federal budget through federal funding
23
of the Medicare program and through federal participation in the Medicaid program has been a major area of federal
executive and Congressional concern, especially in recent years.
While many provisions of the PPACA are already in effect, some aspects of the PPACA and the Reconciliation
Amendment will be implemented over the next few years through the issuance of regulations by HHS. It is unclear what
form final regulations will take. However, once fully implemented, the PPACA and the Reconciliation Amendment will
likely reduce Medicare and Medicaid payments to the Combined Group, increase the Combined Group’s expenses, alter
the Combined Group’s business practices, or otherwise adversely impact its financial performance in a material way.
Recently, an increasing number of operations or practices of health care providers have been challenged or
questioned to determine if they are in compliance with the regulatory requirements for nonprofit tax-exempt
organizations. These challenges, in some cases, are broader than concerns about compliance with federal and state laws,
and instead are examinations of core business practices of the health care organization, such as billing and collection
practices, pricing practices, charitable care, executive compensation, and property tax exemption. These challenges have
come from state attorneys general, the Internal Revenue Service (“IRS”), labor unions, Congress, state legislatures, other
federal and state agencies, and patients. Some of those challenges include the following areas.
Health Care Reform
Comprehensive health care reform was enacted by the federal government in March 2010 through the PPACA
and the Reconciliation Act. The PPACA and the Reconciliation Amendment include provisions to reduce the growth in
federal spending for health care, including proposals to restrict Medicare and Medicaid spending. Among other things,
PPACA restricts the ability of health insurers to design plans, restrict coverage, impose caps, restrict eligibility, and
impose other restrictions on covered individuals. Beginning in 2014, individuals will be required to maintain minimal
essential health care coverage, and the failure to do so may result in the imposition of a financial penalty upon
individuals who fail to maintain such coverage. In addition, not later than 2014, Medicaid coverage will be extended to
individuals under the age of 65 having incomes at or below 133% of the federal poverty level. States had the option to
accelerate such Medicaid coverage to April 1, 2010 and may opt to extend such coverage to individuals with incomes
exceeding 133% of the federal poverty level beginning in 2014. On June 28, 2012, the Supreme Court ruled in National
Federation of Independent Business v. Sebelius that the requirement for states to expand eligibility to individuals under
the age of 65 having incomes at or below 133% of the federal poverty level is optional instead of mandatory. It is
uncertain at this time to what extent states will implement this Medicaid coverage expansion in light of the Court’s ruling
and the Governor of Georgia has stated publicly that Georgia will not develop such a program.
Once fully implemented, the PPACA and the Reconciliation Amendment could have a significant impact on
the future business and operations of the Combined Group, but management of the Combined Group cannot accurately
predict the effect of such implementation at this time.
Other Congressional Hearings and Legislation
In recent years, Congress has focused on tax-exempt hospitals and the community benefit standard for and the
charity care provided by such hospitals. For example, in December 2006, the Chairman of the United States House
Ways and Means Committee introduced H.R. 6420 (Tax Exempt Hospitals Responsibility Act of 2006) that statutorily
mandated the levels of charity care required to be provided by tax-exempt hospitals, and established penalties and taxes
for failure to meet such requirements. This bill never became law. As another example, Senator Charles E. Grassley, the
ranking Republican on the Senate Finance Committee, continues to take an interest in how tax-exempt hospitals obtain
and maintain their charitable status and continue to meet the community benefit standard.
The PPACA establishes requirements for any organization that operates at least one hospital facility to qualify
as a section 501(c)(3) organization. In general, new section 501(r) of Internal Revenue Code of 1986, as amended (the
“Code”) imposes the following new requirements. (1) Each hospital facility is required to conduct a community needs
assessment at least every three taxable years and adopt an implementation strategy to meet the community needs
identified through such assessment. (2) Each hospital facility is required to adopt, implement, and widely publicize a
written financial assistance policy. The financial assistance policy must indicate the eligibility criteria for financial
assistance and whether such assistance includes free or discounted care. (3) Each hospital facility is permitted to bill for
emergency or other medically necessary care provided to individuals who qualify for financial assistance under the
facility’s financial assistance policy to no more than the amounts generally billed to individuals who have insurance
covering such care. A hospital may not use gross charges when billing individuals who qualify for financial assistance.
(4) A hospital facility (or its affiliates) may not undertake extraordinary collection actions (even if otherwise permitted
24
by law) against an individual without first making reasonable efforts to determine whether the individual is eligible for
assistance under the hospital’s financial assistance policy.
These requirements were generally effective for taxable years beginning after March 23, 2010, and the
requirement for a community needs assessment is effective for taxable years beginning after March 23, 2012.
Failure to complete a community health needs assessment in any applicable three-year period can result in a
penalty on the organization of up to $50,000, in addition to possible revocation of status as a section 501(c)(3)
organization.
On June 22, 2012, the IRS released for publication a proposed rule that would implement these PPACA
provisions with the exception of the community needs assessment requirement. Comments were due by September 24,
2012. It is uncertain at this time when the IRS will finalize these proposals or publish proposals for the community
needs assessment requirement.
The PPACA also imposes reporting and disclosure requirements on hospital organizations. The IRS is required
to review information about a hospital’s community benefit activities at least once every three years. The PPACA
requires the Secretary of the Treasury, in consultation with the Secretary of HHS, to submit annually a report to
Congress with information regarding the levels of charity care, bad debt expenses, unreimbursed costs of government
programs, as well as costs incurred by tax-exempt hospitals for community benefit activities. The Secretary of the
Treasury, in consultation with the Secretary of HHS, must conduct a study of the trends in these amounts, and submit a
report on such study to Congress not later than five years after the date of enactment. These statutorily mandated
requirements for periodic review will increase IRS surveillance over such organizations and may increase the likelihood
of IRS examinations challenging their section 501(c)(3) status. In addition, submission of a report to Congress relating
to community benefit provided by section 501(c)(3) hospital organizations may increase the likelihood that Congress
will consider additional requirements for section 501(c)(3) hospital organizations in the future.
The changes mandated by PPACA, including the requirements imposed by Section 501(r) of the Code described
above, may have a material adverse impact on the business and operations of the Combined Group.
Internal Revenue Service Initiatives and the New Form 990
To maintain their status as organizations exempt from federal income taxation, certain members of the
Combined Group will be subject to a number of requirements affecting their operations. Failure to satisfy these
requirements, the modification or repeal of certain existing federal income tax laws, the change of IRS policies or
positions, or a change of such members’ methods of operations, purposes, or character could result in the loss by such
members of their tax-exempt status. The IRS has been recently scrutinizing the operation of hospitals by nonprofit
organizations exempt from federal income taxation. Failure by any such member of the Combined Group to maintain its
tax-exempt status or a determination that the operation of any part of the System constitutes an unrelated trade or
business could adversely affect the funds available to the Combined Group to make payments under the Series 2012
Obligation by subjecting income from the System to federal income taxation and by disallowing any deduction to any
member of the Combined Group for interest paid on the Series 2012 Obligation and could result in the inclusion of the
interest on the Series 2012 Certificates in gross income for federal income tax purposes.
The obligations of the members of the Combined Group to make payments under the Series 2012 Obligation
may not be enforceable if payments are requested to be made with respect to an Obligation under the Master Indenture
that was incurred for a purpose inconsistent with the charitable purposes of the members of the Combined Group from
which such payments are requested or that was incurred or issued for the benefit of any entity other than a nonprofit
corporation which is exempt from federal income taxation.
Pursuant to the Taxpayer Bill of Rights enacted in July 1996, the IRS has been given added authority to police
the activities of tax-exempt organizations. In addition to its authority to revoke an entity’s tax-exempt status under
Section 501(c)(3) of the Code, the IRS may, pursuant to Section 4958 of the Code, impose intermediate sanctions on
“excess benefit” transactions between tax-exempt organizations and disqualified persons, such as organization managers
and other such persons who are in a position to exercise substantial influence over the affairs of the tax-exempt
organization. These sanctions may be applied retroactively to any transaction occurring on or after September 14, 1995.
On January 23, 2002, the IRS adopted final regulations concerning these intermediate sanctions provisions, pursuant to
which an excise tax is imposed on excess benefit transactions, such as excessive compensation arrangements. On
September 9, 2005, the Treasury proposed additional regulations under Sections 501(c) and 4958 of the Code which,
among other things, illustrate situations involving excess benefit transactions in which the IRS will assert that only an
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excise tax be imposed and other situations in which the IRS will assert that both excise taxes be imposed and the
organization’s exempt status revoked. In light of these developments, the number of IRS examinations aimed at excess
benefit transactions will likely increase and, in certain circumstances, result in the revocation of the exempt status of the
organization.
For tax years beginning on or after January 1, 2008, tax-exempt organizations, such as nonprofit health care
organizations, are required to complete a redesigned Form 990. The Form 990 is the annual information return filed by
such organizations with the IRS. As a result of the redesigned Form 990, health care organizations, for tax years
beginning on or after January 1, 2008, are subject to significantly increased compliance, record-keeping, and reporting
obligations with respect to community benefit, billing and collection practices, charity care, tax-exempt bonds, corporate
governance, executive compensation, compliance with safe harbor guidance in connection with management contracts
and research contracts and other matters. These reporting and record-keeping obligations go beyond what many
providers may have done in the past and could result in enhanced enforcement, as the redesigned Form 990 makes
available more detailed information on compliance risk areas to the IRS and other stakeholders.
Charitable Purposes Issues - Georgia
There exists common law authority, as well as Georgia statutory authority, for the ability of the Georgia courts
to terminate the existence of a Georgia nonprofit corporation or undertake supervision of its affairs on various grounds,
including a finding that such corporation has insufficient assets to carry out its stated charitable purpose or has taken
some action that constitutes a substantial departure from its stated charitable purpose. Such court action may arise on the
court’s own motion or pursuant to a petition of the Georgia attorney general or other persons who have interests different
from those of the general public pursuant to the common law and statutory power to enforce charitable trusts and require
the application of nonprofit corporation funds to their intended charitable uses.
It is possible in the future, therefore, that the Georgia attorney general or the Georgia courts might deem the
Master Indenture to constitute obligations of such value as to cause either any or all members of the Combined Group to
have liabilities and obligations that exceed their assets, thereby being subject to termination by the attorney general.
Moreover, the attorney general or the Georgia courts may deem the performance of the obligation represented by the
Master Indenture to constitute a substantial departure from the stated charitable purposes of the members of the
Combined Group, and the performance of the Master Indenture as to such members could be enjoined.
An action to enforce a charitable trust and require the application of its funds to their intended charitable uses
could also arise if an action to enforce the obligation to make payments under the Master Indenture would result in the
cessation or discontinuation of any material portion of health care or related services previously provided by the member
of the Combined Group from which payment is requested.
The obligations of a member of the Combined Group to make payments under the Master Indenture may also
not be enforceable to the extent such payments are requested to be made from any assets that are donor-restricted or that
are subject to a direct, express, or charitable trust which does not permit the use of such assets for such payment. Due to
the absence of clear legal precedent in this area, the extent to which the assets of any present or future member of the
Combined Group constitute assets that are so restricted or subject to such trusts cannot now be determined. The amount
of such assets could be substantial.
Challenges to Real Property Exemptions
Recently, taxing authorities in certain state and local jurisdictions have sought to impose or increase taxes
related to the properties and operations of nonprofit organizations, particularly where such authorities have been
dissatisfied with the amount of service provided to indigent patients. In Illinois, the Illinois courts recently upheld a
decision by the Illinois Revenue Department to revoke the property tax exemption of a tax-exempt hospital in Illinois
and the Illinois General Assembly enacted into law effective June 14, 2012, 35 ILCS 200/15-86, amending the Illinois
Property Tax Code to allow a charitable exemption of real property if the value of qualifying services or activities of the
hospital equals or exceeds the estimated property tax liability. While management of the Combined Group is not aware
of any challenges to the tax-exempt status of the real property of the Combined Group, it cannot predict whether any
such actions would be taken by the State of Georgia or the Georgia Department of Revenue.
Indigent Care
Various congressional committees have held public hearings on the issue of unfair competition between
nonprofit and for-profit health care organizations and on the issue of the amount of indigent care that should be provided
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by nonprofit organizations that have resulted in proposed federal legislation in Congress. Similar hearings have been
conducted by certain state legislative bodies. These hearings have focused on the need for changes in the law relating to
the taxation of nonprofit organizations in connection with revenue-producing activities in which they are engaged and
relating to the amount of indigent care that should be provided to maintain the tax exempt status of nonprofit
organizations. On June 30, 2006, the United States Government Accountability Office (“GAO”) released to the Ways
and Means Committee of the U.S. House of Representatives its survey concerning the level of executive compensation
reported by selected hospital systems and concerning related corporate governance issues. Following delivery of the
GAO survey several members of Congress, including the Chairman of the Finance Committee of the U.S. Senate, called
on the IRS to reconsider terms of the community benefit standard, which health care organizations generally must satisfy
in order to qualify as Section 501(c)(3) organizations, with a view to seeing the IRS impose minimum levels of
uncompensated indigent care that any such organization must offer as a condition of maintaining its charitable status.
Although the IRS has not yet proposed to modify the community benefit standard, there can be no assurance it will not
do so in the future or as to the impact such standard, if imposed, would have on the on the business and operations of the
Combined Group.
The System provides indigent care without charge or at reduced rates. The amount of this uncompensated care
has increased in recent years and is expected to continue to increase in the future. A large portion of this uncompensated
care results from emergency room admissions. General economic conditions that affect the number of employed
individuals who have health coverage affects the ability of patients to pay for health care. The unemployment rate in the
State of Georgia has hit historically high levels and has caused a significant decrease in the number of individuals who
have health coverage or have the financial resources to pay for health care. Similarly, changes in governmental policy
may increase the frequency and severity of indigent treatment by such hospitals and other providers. It is also possible
that future legislation could require that tax-exempt hospitals maintain minimum levels of indigent care as a condition of
federal income tax exemption, as well as exemption from certain state and local taxes. The Combined Group maintains
records to identify and monitor the level of indigent care it provides, which include the amount of charges foregone for
services and supplies furnished pursuant to its indigent care policy.
The approximate amounts of indigent care provided by the Combined Group, based upon charges foregone, for
its past five fiscal years are set forth below.
Year Ended July 31
Indigent Care (in thousands)
2008
2009
2010
2011
2012
$31,700
48,700
60,300
80,700
78,800
Litigation Relating to Billing and Collection Practices
Hospitals have been sued by patients in connection with the tax-exempt status of these facilities. Between 2004
and 2006, more than 45 lawsuits have been brought against major hospital systems throughout the United States on
behalf of uninsured patients. These suits have sought class-action status and included claims that the defendants, by
accepting tax-exempt status, entered into agreements with the federal, state, and local governments promising to provide
free or reduced cost care to all who need it; that the uninsured patients are beneficiaries of those agreements and entitled
to bring suit under them; that the defendants engaged in illegal and oppressive tactics against the uninsured; that the
defendants engaged in illegal price discrimination by charging the uninsured rates far in excess of those charged to
Medicare and other third-party payors; that the defendants violated state consumer fraud statutes; that they allowed a
portion of their properties to be used by for-profit entities at less than fair value and engaged in other inappropriate
transactions with doctors and certain “insiders”; that the defendants illegally transferred monies for other than charitable
purposes; and that the defendants conspired to charge illegal prices to the uninsured. Most, if not all, of these cases were
dismissed.
There can be no assurance that future changes in the laws, rules, regulations, and policies relating to the taxation
of nonprofit organizations will not force the members of the Combined Group to increase their services to indigent
patients at reduced rates or without charge in order to retain their tax-exempt status.
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Payment Reform
As part of the general health care reform initiatives described in this Official Statement and with the enactment
of the PPACA and the Reconciliation Amendment, the payment structure from payors, including private payors and
governmental program payors, may be altered from current methodologies. The PPACA rewards the reorganization of
care delivery model in the form of “accountable care organizations” (“ACOs”) in which providers would share in any
reduction in health care expenditures for a given population. The PPACA gives the Secretary of HHS the flexibility to
implement innovative payment models for participating accountable care organizations. In addition, the PPACA directs
the Secretary of HHS to develop a national, voluntary pilot program encouraging hospitals, physicians, and post-acute
care providers to improve patient care and achieve savings for the Medicare program through bundled payment models.
The National Pilot Program on Payment Bundling must be established by January 1, 2013 and run for a period of five
years. If the pilot program is found to improve quality and reduce costs, the Secretary of HHS has the authority to
expand the pilot program, but the PPACA does not require making a bundled payment model permanent. In addition,
the PPACA also provides for a payment bundling model under the Medicaid program through a demonstration program
in up to 8 states which began on January 1, 2012 and will end on December 31, 2016. Under this demonstration, the
acute care hospital payment is expanded to include post-acute care provided in acute care hospitals and non-hospital
settings, and/or hospital and concurrent physician’s services. Under this model, hospitals will receive a single bundled
payment from Medicaid for such services. While neither of these PPACA initiatives have been implemented, HHS is in
the process of implementing a program for testing different models for bundled payments through separate authority
granted under the PPACA. The effect of any type of these payment models is uncertain and may result in reduction of
net revenue of the Combined Group members.
Conclusion
The foregoing are some examples of the challenges facing nonprofit health care organizations. The legislation
and initiatives already enacted, as well as any legislation or initiatives that may be enacted, as a result of any of the
challenges discussed above could have a material adverse impact on the business and operations of the Combined Group.
Federal Laws Affecting Health Care Facilities
ARRA
ARRA, which was signed into law in February 2009, includes certain provisions which are intended to provide
financial relief to health care providers, such as an increase in the amounts paid by the federal government to the states to
fund Medicaid through December 31, 2010. Additionally, Title XIII of ARRA, otherwise known as the Health
Information Technology for Economic and Clinical Health Act (“HITECH”), provides for an investment of almost $20
billion in public monies for the development of a nationwide health information technology infrastructure. Among other
things, HITECH provides financial incentives, through the Medicare and/or Medicaid programs (the Medicare and
Medicaid EHR Incentive Programs), loans, and grants to encourage practitioners and providers to adopt and make
meaningful use of certified electronic health records. Beginning in 2015, Medicare payments will be reduced for
practitioners and providers who do not make meaningful use of certified electronic health records. HITECH also
significantly increased fines and the scope of remedies for violations of the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) and breaches of privacy and security of protected health information and, if
certain procedures and technologies are not in place, requires disclosure to affected individuals, the United States
Department of Health and Human Services (“HHS”) “), and (in some circumstances) the news media in the event of a
breach of protected health information, as that term is defined by HITECH and the implementing regulations. Criminal
penalties can be imposed against persons (including employees of covered entities and business associates) who obtain
or disclose protected health information without authorization. In addition, a state’s attorney general can bring civil
actions against a person on behalf of residents adversely affected by violations of either HIPAA or HITECH. The state
attorney general can either seek to enjoin further violations or obtain money damages on behalf of the residents harmed.
Under HITECH, HHS has begun to perform periodic audits of health care providers to ensure compliance with
HIPAA/HITECH requirements and the Privacy, Security and Breach Notification Rules. Additionally, under HITECH,
individuals harmed by violations will be able to recover a percentage of monetary penalties or a monetary settlement
based upon methods to be established by HHS for this private recovery in the next few years. No determination can be
made at this time as to what effect, if any, ARRA may have on the operations or revenues of the Combined Group.
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Federal Privacy Laws
When Congress enacted HIPAA, it required HHS to implement national standards to protect the privacy and
security of individually identifiable health information (protected health information), as well as adopt standards for
electronic claims submission and other healthcare financial and administrative transactions. With respect to the privacy
standards, HHS published in December 2000 a set of regulations governing the use and disclosure of protected health
information (the “Privacy Rule”). As of April 14, 2003, healthcare providers are required to be fully compliant with the
Privacy Rule, as it was amended by HHS on August 14, 2002. The final rule adopting standards for the security of
electronic health information (the “Security Rule”) was published on February 20, 2003, and, as of April 20, 2005,
providers are required to operate in compliance with these regulations.
The standards for electronic healthcare transactions (the “Transactions Rule”) were scheduled to go into effect
on October 16, 2003. However, due to low compliance levels as that date neared, the Centers for Medicare and
Medicaid Services of HHS (“CMS”) established a “contingency plan” that permitted electronic claims submission in
accordance with electronic formats then currently in use for a one year period. On January 16, 2009, HHS published
certain amendments to the transactions standards contained in the Transaction Rule that, among other things, set forth a
compliance date of January 1, 2012; after a grace period provided by CMS, covered entities are now expected to be in
compliance with the updated transactions standards. On January 16, 2009, HHS also adopted a new generation of
diagnosis and procedure codes, commonly known as the ICD-10 code sets, requiring compliance by all covered entities,
including hospitals, by October 1, 2013; that compliance date has since been postponed until October 1, 2014. HIPAA
implementing regulations also require the adoption and use of a set of new, unique identifiers, the National Provider
Identifier (NPI), to identify health care providers in, among other things, claims transactions submitted after May 23,
2007, with a one-year extension applicable to small health plans. On September 5, 2012, CMS published a rule adopting
a HIPAA standard for a national, unique health plan identifier (HPID) for HIPAA transactions; the rule requires plans to
obtain HPIDs by November 5, 2014 (or November 5, 2015, for small plans), and all covered entities, including health
care providers, to use such HPIDs in HIPAA standard transactions where health plans need to be identified beginning
November 7, 2016. Under the PPACA, HHS is required to adopt, under the Transactions Rule, a single set of “operating
rules” for each of the HIPAA transaction standards, to reduce the variations in how individual health plans and
clearinghouses implement the transactions standards; to date, operating rules have been adopted for a number of HIPAA
standard transactions and compliance is now required for some, but not all, of the HIPAA/PPACA operating rules. The
PPACA also provides for the establishment by HHS of an expedited process for the maintenance and updating of
existing HIPAA transaction standards to newer versions
The Privacy Rule prohibits any covered entity, including hospitals and health systems, from using or disclosing
an individual’s protected health information unless the use or disclosure is authorized by the individual (or his or her
personal representative) or is specifically required or permitted under the final regulations. The Security Rule specifies a
series of administrative, technical, and physical safe guards that covered entities must implement and follow to ensure
that confidentiality, security and integrity of electronic protected health information is not breached or compromised.
With respect to the Transactions Rule, electronic claims must be HIPAA compliant or they will not be processed and will
be returned to the filing provider for resubmission in the compliant format. Subject to several limited exceptions, claims
submitted for Medicare reimbursement must be submitted electronically and, thus, in a HIPAA compliant format. Under
the PPACA, as of January 1, 2014, payments for Medicare claims will only be made by electronic funds transfer.
In addition to the provisions noted above, HITECH modified certain provisions of the HIPAA Privacy Rule and
Security Rule, and included additional requirements meant to protect the privacy and security of protected health
information, including, but not limited to, a new federal breach notification obligation applicable to HIPAA covered
entities and their business associates. HHS, as required by HITECH, has issued a regulation setting forth the breach
notification obligations applicable to covered entities and their business associates (the “HHS Breach Notification
Rule”). On July 14, 2010, HHS published a proposed rule to amend the HIPAA Privacy, Security, and Enforcement
Rules to implement other HITECH requirements; as of the date hereof, the final rule has not been published. The
various requirements of HITECH and the HHS Breach Notification Rule have different compliance dates. The
Combined Group is in compliance with the currently implemented requirements of HITECH and the HHS Breach
Notification Rule, but can make no assurances that it is currently in compliance with all elements of the law.
Individually and collectively, the Privacy, Security, Breach Notification and Transactions Rules impose a
complex system of requirements that healthcare providers must follow, and covered providers are subject to civil and
criminal penalties for failing to do so. Originally under HIPAA, civil penalties of up to $100 per violation could be
imposed, with a cap of $25,000 for all identical violations in a calendar year, but with the passage ARRA, a penalty
structure was created and the per violation amount and the total penalties per year were increased based on the severity
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of the violation; in certain circumstances, penalties of up to $50,000 per violation can be imposed, with a maximum
penalty of up to $1,500,000 for all identical violations in a calendar year. Criminal penalties include fines of up to
$50,000 and imprisonment of up to one year. Criminal penalties increase substantially if the offense occurs under false
pretenses or with the intent to sell, transfer, or use individually identifiable health information for commercial advantage,
personal gain, or malicious harm. The administrative and financial burden of complying with the Privacy, Security,
Breach Notification and Transactions Rules is expected to be substantial. Even after a healthcare provider has
implemented compliance measures, there are expected to be significant, continuing costs associated with compliance.
The Combined Group has worked to bring its health information systems into compliance with the Privacy, Security,
Breach Notification and Transactions Rules by the applicable deadlines. However, the Combined Group cannot predict
the extent to which the costs of maintaining compliance with these regulatory requirements will affect its financial
performance.
Medicare and Medicaid Programs
Laws have been enacted from time to time to curb the amount of federal and state expenditures in health care,
particularly in the Medicare and Medicaid programs. For example, the Balanced Budget Act of 1997 (the “BBA”) made
substantial cuts in health care spending that adversely affected many health care providers. In the past, the federal
government has curbed health care spending in other ways as well: by reducing the share of federal matching payments
paid to the states to subsidize the cost of their Medicaid programs; making program changes that affect reimbursement;
and, increasingly, emphasizing the prevention of health care fraud, with a resultant rise in investigation and prosecution
of health care providers. There will most likely be a continuing effort to achieve legislative and regulatory reform in
these areas on the federal level. According to a report issued in 2012 by the Board of Trustees of the Federal Hospital
Insurance and Federal Supplementary Medical Insurance Trust Funds, the Medicare trust fund, which is used to pay
Medicare hospitalization coverage, could be exhausted by 2024.
Health care providers will continue to be significantly impacted by changes in the last several years in federal
health care laws and regulations aimed at regulating, controlling, or altering the methods of delivering and financing
health care. Further, any additional health care reform legislation that is passed will have a significant impact on health
care providers. Bills that have been enacted on the federal level have caused severe reductions in reimbursement from
the Medicare program. These laws and regulations have significantly affected health care providers by increasing
governmental oversight of health care providers, reducing reimbursement to providers, and increasing the penalties and
sanctions for providers who fail to comply with Medicare regulations.
The enactment of HIPAA and the BBA provide evidence of Congress’ desire to decrease federal expenditures
on Medicare and Medicaid and to reduce Medicare and Medicaid fraud. Congress has also affected reimbursement
levels to providers through the enactment of the Medicare, Medicaid and State Children’s Health Insurance Program
Balanced Budget Refinement Act of 1999 (“BBRA”) and the Benefits Improvement and Protection Act of 2000
(“BIPA”). The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), which was
signed into law on December 8, 2003, generally increased reimbursement levels. The Deficit Reduction Act of 2005 (the
“DRA”), which was signed into law on February 8, 2006, implemented, among other things, cuts in Medicare program
benefits while increasing spending to combat waste, fraud, and abuse. The Tax Relief and Health Care Act of 2006 (the
“2006 Tax Act”) focuses on quality of care. Regulations implementing or further defining the provisions of these
aforementioned Acts have been or likely will be enacted, and will likely be subject to future revisions. Therefore, it is
not possible at this time to determine all of the effects of such regulations on the Combined Group. Health care
legislation has been and continues to be the subject of much debate in Congress, and further health care bills and
enactments are likely.
On August 2, 2011, President Obama signed into law the Budget Control Act of 2011 (“BCA”). The law
involves the introduction of several complex mechanisms such as the creation of the Congressional Joint Select
Committee on Deficit Reduction, options for a balanced budget amendment and automatic budget sequestration (this last
mechanism is popularly known as the “fiscal cliff”) to address the federal government’s debt and budget deficits. The
BCA specified an incentive for Congress to act to reduce the US Government’s deficit by at least $1.2 trillion. If
Congress failed to produce a deficit reduction bill of at least $1.2 trillion but did increase the debt ceiling by up to $1.2
trillion then across the board cuts (“sequestrations”) to mandatory and discretionary spending for the years 2013 to 2021
in an amount equal to the difference between $1.2 trillion and the amount of deficit reduction enacted by the Joint
Committee will take effect beginning January 1, 2013. While Social Security, Medicaid, civil and military pay and
veterans are exempt from sequestration, Medicare payments to providers, including the Combined Group are not.
Congress and the President have until December 31, 2012 to put in place alternate deficit reduction, spending and tax
agreements to avert the sequestrations. Currently no such legislation with the President’s support has been proposed in
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Congress. Unless the sequestrations are averted, significant reductions in reimbursement to Medicare providers,
including the Combined Group, are probable. No determination can be made at this time as to the effect upon the
Combined Group of the reduction in Medicare payments due to sequestration.
No determination can be made at this time as to whether any health care legislation will be enacted into law and,
if enacted, what effect, if any, it may have on the operations or revenues of the Combined Group.
Patient Transfers
Federal law requires hospitals that participate in Medicare and Medicaid to comply with the Emergency
Medical Treatment and Active Labor Act of 1986 (“EMTALA”), and the Combined Group is therefore required to
adhere to EMTALA’s requirements. Under EMTALA, any individual, not just a Medicare or Medicaid beneficiary, that
comes to the emergency department of a hospital seeking medical examination or treatment must be provided an
“appropriate medical screening” examination. The hospital must determine whether an emergency medical condition
exists or whether a woman is in active labor. If an emergency medical condition exists or a woman is in active labor, the
hospital must provide sufficient examination and treatment to stabilize the patient or must transfer the patient, if the
transfer meets EMTALA’s requirements for an “appropriate” transfer. EMTALA requires hospitals to provide the
medical screening exam and stabilizing treatment regardless of the individual’s ability to pay and prohibits hospitals
from inquiring into the individual’s method of payment or insurance status before providing the treatment. Additionally,
EMTALA prohibits hospitals from delaying treatment in order to obtain prior authorization for treatment from an
individual’s managed care plan. Because of these prohibitions, the Combined Group may be required to provide
substantial amounts of care and services for which they will not receive reimbursement.
Hospitals that knowingly and willfully, or negligently, fail to comply with EMTALA’s requirements are subject
to termination as a Medicare provider. Additionally, the HHS Office of Inspector General may impose civil monetary
penalties of up to $50,000 per violation. EMTALA also provides a private right of action for individuals who suffer
harm as a result of a hospital’s EMTALA violations.
Management of the Combined Group believes its policies and procedures have been and currently are in
material compliance with EMTALA, but no assurance can be given that a violation of EMTALA will not be found. Any
sanctions imposed as a result of an EMTALA violation could have a material adverse effect on the business and
operations of the Combined Group members.
The Medicare Program and Related Regulations
Introduction
The Medicare program, which is administered by CMS, is funded by the federal government and was created as
part of the Social Security Amendments of 1965. Title XVIII of the Social Security Act, officially titled “Health
Insurance for the Aged and Disabled,” contains the operative provisions. Medicare is a reimbursement program
designed primarily for assistance to the aged and disabled and consists of four primary parts, typically referred to as Parts
A, B, C and D. Part A provides coverage primarily for inpatient hospital services, post-hospital extended care services,
and post-hospital home health services. Part B provides coverage primarily for services provided in an outpatient
setting, such as by physicians, other health care practitioners, clinical laboratory and diagnostic tests, ambulatory
surgery, as well as for other services or equipment provided by medical suppliers. Part C, once known as
“Medicare+Choice” and now referred to as “Medicare Advantage,” is intended to provide Medicare beneficiaries with
access to private health plan choices and serve as an alternative to the traditional fee-for-service Medicare program. Part
D is the prescription drug benefit added to the Medicare program by MMA. The Medicare Part A program is financed
primarily out of compulsory taxes paid by employers and employees under the Federal Insurance Contribution Act and
by the self-employed under the Self-Employment Contribution Act. An individual may become eligible for Part A
benefits in several ways, although as a general rule, an eligible individual must have reached the age of 65 and be entitled
to certain benefits under the Social Security program.
CMS delegates to the states the process for certifying hospitals to which CMS will make payment. To achieve
and maintain Medicare certification, hospitals must meet CMS’s “Conditions of Participation” on an ongoing basis, as
determined by the state and/or The Joint Commission. Under the PPACA, as a new Condition of Participation, Medicare
providers are required to implement compliance programs that contain core elements established by the Secretary of
HHS in consultation with the HHS Office of Inspector General (“OIG”). The requirements for Medicare certification are
subject to change, and, therefore, it may be necessary for hospitals to effect changes from time to time in their facilities,
31
equipment, personnel, billing, policies and services. Members of the Combined Group are certified as a provider for
Medicare services.
In the last several years, Congress has enacted several laws and federal agencies have promulgated numerous
regulations that affect the Medicare Program. The purpose of much of the recent statutory and regulatory activity has
been to reduce the rate of increase in health care costs paid under the Medicare Program, and the most sweeping changes
in Medicare are contained in the PPACA and the Reconciliation Amendment.
Inpatient Services - Reimbursement
General. In recent years, providers have been reimbursed for most Medicare inpatient services under a
prospective payment system (“PPS”), which pays hospitals fixed amounts for specific services based on patient
diagnosis. Under the PPS, each Medicare patient discharge has been classified into one of approximately 745 Medicare
Severity Diagnosis-Related Group (“MSDRG”) categories and the hospital is reimbursed a specific fixed predetermined
rate established by Medicare for that particular patient’s MSDRG, regardless of the actual costs incurred by the hospital
for the treatment of such patient. For each MSDRG category, both an urban and a rural rate has been set for each of nine
regions, and a nationwide rate has been set for each MSDRG category. The rate varies based on the particular region’s
wage rates, and the MSDRG rate for each hospital within a region depends on the weights (based upon the hospital’s
case-mix) for each MSDRG. If a hospital treats a patient for less than the applicable MSDRG rate, the hospital is
entitled to retain the difference. Although additional payments are made under the present PPS for cases involving
unusually high costs in comparison with other discharges in the same MSDRG category (known as “outlier payments”),
generally, if a hospital’s cost of treating the patient exceeds the MSDRG rate, the hospital will not be entitled to any
additional payment, and it will realize a loss. However, if the hospital’s costs are less than the prospective payment rate,
the hospital will realize a profit. Since payments to hospitals under a MSDRG system have not reflected the actual costs
incurred by many hospitals and since such losses have had to be recovered, if at all, from other sources of revenue, many
other third-party payors, including Alternative Delivery Systems, have implemented their own prospective payment
systems designed to prevent “cost shifting” to such payors and are actively seeking to reduce their payment obligations
to hospitals.
MSDRG payments are adjusted each federal fiscal year (which begins October 1) based on input price indexes
or so-called “market baskets.” For most years since 1983, Congress has modified the increases and given substantially
less than the market basket index. CMS has also implemented an adjustment in documentation and coding to account for
payments under the MSDRG system that are unrelated to changes in case mix. CMS also has authority to determine
retrospectively if the documentation and coding adjustments for these years adequately accounted for payment changes
unrelated to changes in case mix. This resulted in additional adjustments for federal fiscal years 2010, 2011, 2012, and
2013. Moreover, the Secretary of HHS is required to annually review the MSDRG categories to account for new
procedures, reclassify MSDRGs, and revise DRG relative-value weights to reflect relative resources used by providers
with respect to a given MSDRG category. Under PPACA and the Reconciliation Amendment, inpatient hospitals, longterm care hospitals, inpatient rehabilitation facilities, psychiatric hospitals and outpatient hospitals will face changes in
the way market basket updates are calculated.
The PPACA instituted an across-the-board payment adjustment through a decrease in the market basket over a
ten-year period and, for the first time, starting in fiscal year 2012, incorporates a productivity adjustment into the market
basket update. For federal fiscal years 2010 and 2011, the market basket update was generally reduced by 0.25%. (and
0.50% for long term care hospitals in 2011). For 2012 and forward, the market basket update will be reduced by a
productivity adjustment. There can be no assurance that any future changes in classification of patient hospitalizations
will not adversely affect the Combined Group.
Other Medicare Service Payments. Medicare payments for inpatient rehabilitation services, psychiatric services
and general outpatient services are based on regulatory formulas or pre-determined rates. Specific to psychiatric
services, CMS published a final rule on November 15, 2004 for converting inpatient psychiatric services to PPS, as
mandated under the BBRA. This PPS system applies to both free-standing psychiatric hospitals and certified psychiatric
units in general acute-care hospitals. This system became effective for cost-reporting periods from and after January 1,
2005, and rates under this system were phased in over a three-year period. There is no guarantee that any of these rates,
as they may change from time to time, will be adequate to cover the actual cost of providing these services to Medicare
patients.
Capital Costs; Hospital Wage Index. A hospital’s capital-related costs for treating Medicare inpatients, which
include interest, depreciation, equipment rentals, amortization of financing costs, taxes, insurance, and similar expenses
32
for plant and fixed and movable equipment are reimbursed on the basis of a prospective capital rate, adjusted for case
mix, area wage index, urban location, disproportionate share factors, and outlier cases. There are special exceptions for
hospitals financially disadvantaged by the new capital-related cost PPS. A hospital is entitled to additional Medicare
capital payments if the total Medicare capital payment it is entitled to receive during any cost reporting period would
otherwise be less than the following applicable minimum (floor) payment levels, determined by class of hospital: (1)
90% of total allowable Medicare inpatient capital costs, for sole community hospitals, (2) 80% for urban
disproportionate share hospitals with at least 100 beds, and (3) 70% for other hospitals.
Section 3137 of the PPACA required hospital wage index reform. Pursuant to the PPACA, the Secretary of
HHS presented to Congress a comprehensive reform plan to calculate relative wages for each geographic area involved.
The Secretary recommended the commuting based wage index methodology as a viable alternative to the current
methodology used to determine the wage adjustment to payments made under IPPS. If this alternative approach is
adopted, each hospital would have a wage index value based on actual employment patterns of the hospital, instead of a
value assigned for all hospitals in a specific region.
There can be no assurance that future capital-related payments will be sufficient to cover the actual capitalrelated costs of the Combined Group’s facilities applicable to Medicare patient stays or will provide flexibility for
hospitals to meet changing capital needs.
Preventable Medical Errors. The DRA required the HHS Secretary to select at least two conditions that are:
(1) high cost, high volume or both; (2) identified through coding as a complicating condition or major complicating
condition that, when present as a secondary diagnosis at discharge, results in payment at a higher MSDRG; and
(3) reasonably preventable through application of evidence-based guidelines. Such conditions are referred to as
“hospital-acquired conditions.” The DRA further required hospitals to begin reporting on claims for discharges,
beginning October 1, 2007, whether the selected conditions were present on admission. In the fiscal year 2008 Inpatient
Prospective Payment System Final Rule, CMS selected eight conditions in furtherance of this mandate. These included
seven conditions identified by the National Quality Forum as “never events.” In the fiscal year 2009 Inpatient
Prospective Payment System Final Rule, CMS finalized several more conditions, within three categories. All of the
conditions will have payment implications when acquired during an inpatient stay for discharges on or after October 1,
2008. CMS added two more conditions in the fiscal year 2013 Inpatient Prospective Payment System Final Rule. These
events are now referred to as the serious reportable events.
In December 2008, the Office of the Inspector General (the “OIG”) issued several broad reports about adverse
events in hospitals and the need to improve patient safety, along with a report that presented the findings of a case study
that was specific to two counties. The incidence of adverse events and their payment implications continues to be an
area of focus for regulators.
The PPACA implements payment adjustments for hospital-acquired conditions. Beginning October 1, 2015,
hospitals in the 25th percentile of rates of hospital-acquired conditions for certain high-cost and common conditions
would be subject to a payment penalty under Medicare. The PPACA requires the Secretary of HHS to report to
Congress on the appropriateness of establishing the same type of policy for other Medicare participating providers,
including outpatient hospital departments, ambulatory surgery centers, inpatient rehabilitation facilities and long-term
care hospitals.
Value-Based Purchasing. Under PPACA, a value-based purchasing program for hospitals will apply to
payments beginning October 1, 2012. Under this program, a hospital is eligible to receive value-based incentive
payments that are tied to the hospital’s performance on quality measures related to common and high-cost conditions,
such as cardiac, surgical and pneumonia care. Quality measures included in this program include clinical process of care
measures, patient experience measures, outcome measures, and an efficiency measure. Hospital reimbursements will be
reduced to fund these incentive payments. In fiscal year 2013, payments will be reduced by 1.0 percent and will increase
to 2.0 percent by fiscal year 2017.
Readmissions. Under the PPACA, CMS is required to implement the Hospital Readmissions Reduction
Program in fiscal year 2013. CMS is required to calculate national and hospital-specific data on the readmission rates of
Medicare participating IPPS and certain demonstration hospitals for three conditions selected by the Secretary of HHS
based on high volume or spending (Acute Myocardial Infarction, (AMI) Heart Failure (HF) and Pneumonia (PN)).
Beginning in fiscal year 2015, the four conditions specified in the Medicare Payment Advisory Commission’s
(“MedPAC”) June 2007 report to Congress will be added, as well as other conditions which the Secretary of HHS deems
appropriate. Beginning on October 1, 2012, hospitals with readmission rates above a certain threshold will have
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payments for the original hospitalization reduced if a patient with a selected condition is re-hospitalized with a
preventable readmission within 30 days. The maximum reduction in fiscal year 2013 is 1.0 percent and is to increase to
2.0 percent in fiscal year 2014 and 3.0 percent in fiscal year 2015 and beyond.
Outpatient Services - Reimbursement
The BBA established a PPS for outpatient hospital services. Outpatient PPS (“OPPS”) became effective
August 1, 2000 for hospital outpatient services and October 7, 2000 for provider-based facilities owned by hospitals, and
was phased-in over a three-year period ending in 2004. Under OPPS, hospital outpatient services are divided into
ambulatory payment classifications (“APCs”). APC groups define the clinically-related and resource-similar items and
services that contribute to the cost of a procedure or service. Each APC is assigned a weight, which is based on the
median cost of the services in the group. OPPS rates are adjusted annually based on the hospital inpatient market basket
percentage increase. Payments to hospitals under OPPS may not reflect the actual costs incurred by many hospitals. The
Combined Group cannot predict how future OPPS adjustments that may be made by Congress and CMS may affect the
financial condition of the Combined Group.
Provider-Based Standards
Provider-based entities are providers of health care services that are created by, or acquired by, a hospital for the
purpose of furnishing health care services of a different type from those furnished by the hospital. Normally, providerbased entities are entitled to additional reimbursement that would not be available if the entity were classified as freestanding. Effective January 10, 2001, CMS issued final regulations including an eight-part test to determine whether an
entity qualifies as “provider-based” rather than “freestanding.” More recently, CMS has attempted to address, in a
Program Memorandum dated April 18, 2003, certain ambiguities present in the January 10, 2001 final regulations in
connection with these standards. The current standards make it more difficult to qualify as “provider-based” and are
aimed at stemming the proliferation of entities characterized as “provider-based.” These standards may lead to the
reclassification of entities operating within the System from “provider-based” to “freestanding.” Such a reclassification
may adversely affect the entity’s reimbursement under the Medicare program. In addition, in the event a facility or
department that bills for outpatient services is found to be out of compliance with current provider-based regulations, the
Combined Group could be liable for Medicare overpayments in the amount of the difference between being “free
standing” and “provider-based” for purposes of Medicare payments. It is not possible at this time to predict how the
current standards ultimately will affect the Combined Group.
Physician Payments
Under Medicare, physicians may elect to “participate” or enroll in the Medicare program as a provider. Under
PPACA, if a physician is not enrolled in the Medicare program, the physician must seek and obtain enrollment before
ordering durable medical equipment or home health services that incur any cost to the Medicare program. Medicare Part
B provides reimbursement for physician services, including employed and provider-based physicians, based upon a
national fee schedule known as the “resource based-relative value scale” (“RBRVS”). Under this system, payments for
physician services are based on resource costs. The cost of providing each service is divided into three components
(each resource based): physician work, practice expense, and professional liability insurance. This produces so-called
relative value units (“RVUs”) that are subject to multiplication by a conversion factor and adjustment for geographic
differences in resource costs in determining payment rates. The conversion factor is a monetary amount that currently is
determined by CMS’s Sustainable Growth Rate (“SGR”) system. The SGR system annually takes into account changes
in the Medicare fee-for-service enrollment, input prices, spending due to law and regulation, and gross domestic product,
effectively changing the RBRVS on an annual basis. A reduction in the SGR results in decreased payment rates.
For 2007, CMS issued a final rule that provided for a 5 percent reduction in the SGR, but Congress eliminated
this reduction pursuant to 2006 Tax Act, which froze payments at then current levels. For calendar year 2010, CMS has
eliminated payments for consultation codes, revised the treatment of malpractice premiums and reduced the Medicare
Physician Fee Schedule rate by 21.2%. On November 19, 2009, the House approved the “Medicare Physician Payment
Reform Act”, which delayed the 21.2% reduction. On December 19, 2009, the Senate approved a freeze on Medicare
payment rates, thus delaying the proposed reduction until February 28, 2010. On December 22, 2009, President Obama
signed this bill into law, with the expectation that a payment fix would be implemented prior to that date. The House and
the Senate, in December 2009 and on March 15, 2010, respectively, passed their version of the “American Workers,
State and Business Relief Act of 2010,” which among other things, included an extension until October 1, 2010, of the
former Medicare payment rates to physicians, who faced a 21.2% rate cut that became effective March 1, 2010.
Congress took action in early March 2010 to delay the proposed rate cut until April 1, 2010. Because the House was not
34
likely to act on this bill prior to April 1, 2010, the House passed on March 17, 2010 the “Continuing Extension Act of
2010” that would delay the proposed rate cut through April 30, 2010 to give the House and Senate the opportunity to
resolve the differences between the House passed and Senate passed bills. However, the Senate did not act on the bill
before it recessed on March 26, 2010, thus allowing the rate reduction for physician payments to take effect as scheduled
on April 1, 2010. The CMS instructed its contractors to hold payment of claims submitted for physician services
delivered after April 1, 2010 for ten business days while it waits for Congress to act on a “fix” for the physician payment
rate. On April 15, 2010, the House and Senate passed, and President Obama signed, the Continuing Extension Act of
2010. This legislation, which was retroactive to April 1, 2010, delayed through May 30, 2010 the reimbursement cut for
physician payments. The CMS has instructed its contractors to begin processing “held” claims under the new legislation.
On June 25, 2010, the President signed the “Preservation of Access to Care for Medicare Beneficiaries and
Pension Relief Act of 2010,” which increased physician payments by 2.2 percent through November 30, 2010. On
November 30, 2010 the “Physician Payment and Therapy Relief Act of 2010” was enacted, which maintained physician
payments at these levels through December 31, 2010. On December 15, 2010, President Obama signed into law the
“Medicare and Medicaid Extenders Act of 2010,” which maintained payments at 2010 levels through December 31,
2011. On December 23, 2011, the Temporary Payroll Tax Cut Continuation Act of 2011 was enacted, which maintained
payments at 2011 levels through February 28, 2012, and on February 22, 2012, the Class Tax Relief and Job Creation
Act of 2012 was enacted, which maintained physician payments at these levels through December 31, 2012. In 2013,
Medicare physician payments are projected to decrease by around 27 percent. To date, legislation has not been enacted
to avert these cuts.
The PPACA directs the Secretary of HHS to develop and implement a budget-neutral payment system that will
adjust Medicare physician payments based on the quality and cost of the care they deliver. Those measures will be riskadjusted and geographically standardized. The Secretary of HHS will phase-in the new payment system over a 2-year
period beginning in 2015.
In general, the medical staff members of the Combined Group, including those physicians employed by
members of the Combined Group are participating physicians in the Medicare program. There can be no assurance that a
legislative solution to the SGR and cuts in physician payments will be enacted by Congress, and if not enacted, payments
to physicians participating in the Medicare program could be significantly cut. Such event is likely to have a significant
effect on the business and financial operations of members of the Combined Group.
Billing Investigations; Medicare Audits and Withholds
HHS, through the OIG or Medicare Administrative Contractors or fiscal intermediaries of CMS that pay
Medicare claims on behalf of HHS, routinely conducts national investigations of hospital Medicare billings for certain
types of services. Hospitals participating in Medicare (and Medicaid) are subject to audits and retroactive audit
adjustments by Medicare Administrative Contractor (“MAC”) or fiscal intermediaries under the Medicare program.
From an audit, a MAC or fiscal intermediary may conclude that a patient has been discharged under an incorrect
MSDRG, that services may not have been provided under the direct supervision of a physician (to the extent so
required), that a patient should not have been characterized as an inpatient, that certain services provided prior to
admission as an inpatient should not have been billed as outpatient services or that certain required disclosures or
processes were not satisfied. As a consequence, payments may be retroactively disallowed. When such billing
investigations occur, members of the Combined Group may be investigated and required to pay penalties, sanctions and
other amounts that reimburse the Medicare program for billing deficiencies. Any such repayments could have a material
adverse effect on the business, operations and financial condition of the Combined Group. Under certain circumstances,
payments may be determined to have been made as a consequence of improper claims subject to the federal False Claims
Act (see discussion below) or other federal statutes, subjecting the hospital to civil or criminal sanctions. Medicare
regulations also provide for withholding Medicare payment in certain circumstances, and such withholdings could have a
substantial adverse effect on the financial condition of the Combined Group. Management of the Combined Group is not
aware of any situation in which a Medicare or other payment is being, or may in the future be, withheld that would
materially and adversely affect the financial condition or results of operations of the Combined Group.
In accordance with the MMA, CMS designated the use of recovery audit contractors (“RAC”) to seek the return
of improper Medicare payments. The 2006 Tax Act made the RAC program permanent and mandated its expansion to
all 50 states. Additionally, the PPACA extends the RAC program to Medicare Parts C and D and to Medicaid. RACs
are paid on a contingency fee basis, receiving a percentage of the improper overpayments and underpayments. Under the
RAC program, software “data mining” programs are employed, as well as complex medical record review, to identify
potential payment errors to hospitals and other providers.
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Connolly Consulting Associates, Inc. is the RAC for Georgia. On September 1, 2009, the RAC for Region C,
which includes Georgia, approved several issues for which it can audit outpatient hospitals and physicians in Georgia.
These issues include: blood transfusions, untimed codes, IV hydration therapy, bronchoscopy services, and once in a
lifetime procedures. Currently, the RAC has authority to audit more than a hundred issues. The Combined Group
cannot anticipate the amount or volume of future Medicare claims that will be reviewed under the RAC program or the
results of any such audits.
Also as required by the MMA, CMS has been replacing its current claims payment contractors (fiscal
intermediaries and carriers), with new MACs. The MMA amended the Social Security Act to remove the authority for
groups or associations and individual providers of services to nominate or appoint their intermediary. It also establishes
that all providers and suppliers will generally be assigned to a MAC based on geographic location. The Medicare Part
A/B MAC contract for the jurisdiction including Georgia was awarded to Cahaba Government Benefit Administrators,
LLC. MACs serve as the primary point of contact for provider enrollment, Medicare coverage and billing requirements,
and processing and payment of Medicare fee-for-service claims for Medicare providers’ respective jurisdictions, and also
have audit powers with respect to billing and payment matters.
Prepaid Plans
Under current HHS regulations, eligible prepaid medical plans (such as the Medicare Advantage program) may
receive payment on a prospective, per capita basis for the cost of services provided to Medicare beneficiaries. The
passage of PPACA, which includes significant reimbursement cuts to Medicare Advantage plans over 10 years, will
likely impact, the number of these plans and of Medicare beneficiaries enrolled in such plans may decrease, which may
result in increases in Medicare admissions and/or payments to hospitals.
Federally Designated Professional Review Organization
The health care facilities of the Combined Group are reviewed by a quality improvement organization (“QIO”)
(note that QIOs were formerly known as peer review organizations or “PROs”), which reviews the necessity and
appropriateness of hospital admissions, the appropriateness of the classifications of discharges, the necessity of patient
transfers and the propriety of practices that have the potential to increase hospital payments improperly. The QIO may,
subject to appeal by the health care facility under review, recommend sanctions to CMS, including denial of payments,
requirements for corrective action or termination from the Medicare program. To date, no member of the Combined
Group has been materially adversely affected by any such denial of payment, but there is no assurance that such denial of
payment will not increase in the future.
Provider and Employee Screening
The PPACA imposes screening requirements on all providers and suppliers who are either currently enrolled or
who are in the process of enrolling in the Medicare program. Under the PPACA, this screening must include a licensure
check and may include other procedures such as (1) a criminal background check, (2) fingerprinting, (3) unscheduled and
unannounced site visits, (4) database checks, and (5) other screening techniques CMS deems appropriate to prevent
fraud, waste and abuse. Medicare providers and suppliers will be required to pay a fee in connection with these
screening procedures. In addition, the PPACA requires national and state criminal background checks, including
fingerprint checks, by providers including long-term care facilities and providers of their employees and contractors who
have, or may have, one-on-one contact with patients. The federal government will also encourage the adoption of similar
screening procedures by state Medicaid programs by withholding matching funds of states that fail to create effective
screening programs.
Conclusion
Over the last several years, payments to health care providers for inpatient and outpatient services, for capitalrelated costs, and other care have been subject to numerous statutory and regulatory changes designed to reduce
government expenditures for health care. Since implementation of PPS, the costs of providing health care services have
outpaced the increases in the amount of reimbursement under the Medicare program. There is no indication either that
payment rates will increase more quickly in the future or that hospitals will cease being affected by changes in the
Medicare program. As a result of changes to the Medicare and Medicaid reimbursement programs, no assurance can be
given that the reimbursement received by the Combined Group will be sufficient to cover costs allocable to Medicare
patients for inpatient and outpatient services, debt service and depreciation, or other care provided by the Combined
Group. Further, in light of the complexity of the regulations relating to the Medicare program, and the threat of ongoing
36
investigations as described in this Official Statement, there can be no assurance that significant difficulties will not
develop in the future.
Medicaid
General
Medicaid is a state-administered medical assistance program which reimburses, among other things, hospital
care costs for the medically indigent, primarily including: children, pregnant women, blind and disabled individuals, and
the elderly. The Georgia Medical Assistance Program (Medicaid) is administered by the Medicaid Division of the
Georgia DCH. The Georgia Medicaid program is jointly funded by the State of Georgia and the federal government.
For the State of Georgia to continue to receive funding for the cost of its Medicaid program from the federal government,
it must administer its program in accordance with federal statutes and regulations. The federal government has on
occasion cut off Medicaid funds to states which were not in compliance with these laws. Any such federal action taken
with respect to the State of Georgia Medicaid program would likely have an adverse effect upon the Combined Group.
The Supreme Court’s June 28, 2012 ruling limited the federal government’s ability to cut off Medicaid funds to states
that did not expand their Medicaid population as PPACA provides. Georgia Governor Nathan Deal announced in
August, 2012 that the state would not expand the state Medicaid program under PPACA because the state could not
afford the cost of such an expansion. The Governor’s Office stated that the state would consider an expansion of the
program if the state was given flexibility in administering the expansion through a block grant. This concept is not
incorporated in the PPACA.
Reimbursement under the Medicaid program is subject to the timely appropriation of sufficient funds by the
Georgia legislature, as well as complexities inherent in claims’ processing and cost-report settlement under the Georgia
Medicaid program. Like most states, the State of Georgia is facing significant budget shortfalls. In the face of a budget
shortfall in 2010, the Georgia legislature passed the Georgia Hospital Provider Fee effective for State Fiscal Years 2011,
2012, and 2013. This fee is 1.45 percent of a hospital’s net patient revenue (hospitals designated as a trauma center pay a
1.4 percent rate and critical access hospitals are not subject to the fee). The State offset this expense through an increase
in hospital Medicaid payments. There can be no assurance that the State of Georgia will not experience budgeting
shortfalls in the future with respect to its Medicaid program, or that claims-processing or cost-report settlement problems
will not arise under the program which could reduce or delay the payment of Medicaid reimbursements to health care
providers.
Increased costs and other factors associated with the Georgia Medicaid program are resulting in its restructuring
along the lines of managed care, which could potentially have adverse financial consequences for the Combined Group.
Beginning in mid-2006, Georgia implemented Georgia Families, a managed care program for portions of the state’s
Medicaid program, which provides that Medicaid services to indigent women and children will be provided by care
management organizations (“CMOs”). To provide services as an in-network provider, hospitals and physicians must
contract with the three CMOs that were selected by the DCH. Members of the Combined Group currently are
participating providers in the CMOs network and provide their services to this population of Medicaid recipients
pursuant to a contract with one such CMO. The DCH had initiated a process to redesign their Medicaid program that
was put on hold after the June 28, 2012 Supreme Court decision on the PPACA and pending the outcome of the
November election. Some of the recommendations of this redesign effort would shift members of the state’s Medicaid
population that remain in a fee for service reimbursement environment into managed care. If these recommendations are
implemented, this could potentially have adverse financial consequences for the Combined Group.
The Medicaid Integrity Program (“MIP”) was created by the DRA. Audits under the MIP are conducted by
Medicare Integrity Contractors. For the MIP, states are primarily responsible for combating fraud in the Medicaid
program; however, CMS provides technical assistance, guidance, and oversight. The PPACA requires each state to
establish a RAC program for its Medicaid program. Myers and Stauffer LC was awarded the Medicaid RAC contract for
Georgia in April 2012. The Medicaid RAC will conduct audits of claims submitted to the state Medicaid program with a
look back period of 5 years. At this time, the Combined Group cannot anticipate the number of Medicaid claims to be
reviewed under the Medicaid RAC program or the results of any such audit.
Reimbursement Methodology
Under the Georgia Medicaid program, hospital inpatient medical services are reimbursed according to a hybrid
diagnosis related group (“DRG”) prospective payment system. Hospital outpatient services are reimbursed according to
37
a retrospective determination of allowable and reimbursable costs. There are no patient deductibles, but the patients pay
a modest co-payment for inpatient and outpatient services under the Georgia Medicaid program.
Under the current Medicaid reimbursement methodology for inpatient services, inpatient claims are reimbursed
for operating cost using one of three payment calculations: (1) inlier DRG, (2) outlier DRG and 3) cost to charge ratio.
The DRG-based prospective payment system groups all cases under one of approximately 500 DRGs. In addition, each
hospital is assigned to peer groups which are used to establish relative weights that reflect the differences in costs
associated with cases in each DRG. Under the Georgia Medicaid program, a case qualifying as an outlier case (a case
normally paid as an inlier case but which has an operating cost in excess of the “outlier threshold” established by the
DCH) is reimbursed by a different methodology which takes into account the additional cost of providing services to
these patients. Certain cases are reimbursed using a cost to charge ratio calculation. In addition to these three payment
calculations, hospitals receive hospital-specific add-on rates for capital and other certain expenses.
The rates reimbursed by Medicaid for outpatient services are subject to limits and ceilings. The State of
Georgia may periodically audit the reimbursable costs upon which the outpatient Medicaid reimbursements are based. If
the costs on which reimbursements have been based are found to be in excess of those permitted, such costs are subject
to being disallowed, and the amounts reimbursed for such disallowed costs are subject to being immediately repayable.
Although the Combined Group believes that the rates to be charged Medicaid outpatients will be appropriately premised
on allowable costs, no assurance can be given that certain costs for outpatient services will not be disallowed. Any
reduction in the services covered by the Georgia Medicaid program or in the payment amounts available for covered
services could negatively impact the Combined Group’s business. In addition, federal contribution to Medicaid
programs could diminish in the coming years if Congress decides to reduce the overall federal deficit by slowing
Medicaid spending or making fundamental reforms to the state/federal cost sharing relationship. Any reduction in the
federal government’s contribution to the Georgia Medicaid program could negatively impact the amount of
reimbursement available through the program and could ultimately negatively impact the Combined Group’s revenues.
Likewise, any cuts in the Georgia Medicaid reimbursement rates by the State of Georgia to offset declining tax revenues
and overcome budget shortfalls could negatively impact the amount of reimbursement available through the program and
could ultimately negatively impact the Combined Group’s revenues.
Under the CMO contracts, the reimbursement arrangements consist primarily of prospectively determined rates
per discharge, discounts from established charges, or prospectively determined per diem rates.
Disproportionate Share Payments
The federal Medicare and the state Medicaid laws permit states to include a “disproportionate share” adjustment
in payments to hospitals to compensate those hospitals that serve a disproportionate share of indigent patients. CMS
published a final rule on December 19, 2008 implementing provisions of MMA to impose additional reporting and
auditing requirements on states for Medicaid disproportionate share hospital payments, and the final rule took effect on
January 19, 2009. In Fiscal Year 2011, members of the Combined Group received net Medicaid disproportionate share
payments of $10,593,000. The PPACA includes changes to the payment methodology for disproportionate share
hospitals. Beginning October 1, 2014, hospitals’ Medicare and Medicaid disproportionate care payments would be
reduced to reflect lower uncompensated care costs relative to increases in the number of insured. Since the enactment of
the PPACA, additional changes have been proposed that would reduce further the level of disproportionate share
hospital’s funding. There is no guarantee that in the future, members of the Combined Group will continue to receive
distributions at their current level or at all.
Regulatory and Contractual Matters
State Regulation
Georgia has established statutory and regulatory requirements for health care facilities. In addition, Georgia has
passed a state version of the federal False Claims Act and the Georgia Patient Self-referral Act of 1993, a mini-Stark law
(see discussion below of each of these laws on a federal level). Failure to comply with laws and rules governing
licensure and standards of care would result in the revocation of a hospital’s license and operating privileges, including
licensure of inpatient facilities and outpatient programs.
Anti-Fraud and Abuse
A number of federal laws, loosely referred to as fraud and abuse laws, are used to prosecute health care
providers and physicians that fraudulently or wrongfully obtain reimbursement that increases costs to any federal health
38
care program. The anti-kickback provisions of the Social Security Act (the “Anti-Kickback Law”) make it a felony to
knowingly and willfully offer, pay, solicit or receive remuneration, directly or indirectly, with the intent to encourage or
induce utilization of services payable under a federal health care program. The Anti-Kickback Law has been construed
by courts to mean that a financial arrangement will violate the Anti-Kickback Law if one of the purposes of one of the
parties is to encourage patient referrals or other Medicare/Medicaid business, even if legitimate purposes also exist for
the arrangement. To protect legitimate and cost-effective arrangements among health care providers, the OIG has issued
21 “safe harbor” regulations that specify certain financial arrangements deemed not to violate the Anti-Kickback Law.
The safe harbor regulations generally are narrowly drawn and protect very few arrangements. In addition, the OIG
asserts the authority to prosecute entities that enter into “sham” transactions that technically comply with a safe harbor if
the OIG determines the substance of the transaction is not reflected by its form. Non-compliance with one or more
elements of a safe harbor does not make conduct illegal; however, non-compliance with a safe harbor does make it more
difficult to determine whether activities in which members of the Combined Group engaged are likely to be considered a
violation of the Anti-Kickback Law, and could require members of the Combined Group to incur significant expenses in
defending any such arrangement should a challenge of such arrangement ensue.
Penalties for violation of the Anti-Kickback Law are severe. Conviction could result in up to five years
imprisonment, a $25,000 fine per offense, exclusion from the federal health care programs, and/or loss of tax-exempt
status. In lieu of or in addition to criminal proceedings under the Anti-Kickback Law, violators of the Anti-Kickback
Law may also be subject to civil monetary penalties. Civil monetary penalties are civil assessments and fines and can
range from $10,000 to $50,000 per offense, as well as damage assessments equal to three times the total amount of the
kickback. Under HIPAA, a provider must be excluded from participation in the federal health care programs if
convicted of any felony relating to health care fraud under federal or state law. For exclusions related to program abuse,
patient abuse, health care fraud or a controlled substance, the minimum period of exclusion is five years. A minimum
one-year exclusion was also created for providers sanctioned for failure to comply with statutory obligations related to
quality of care. Because of the breadth of the Anti-Kickback Law and the narrowness of the safe harbors, no assurance
can be given as to what effect this law will have on the Combined Group.
HIPAA increased the scope of fraud and abuse laws by applying them to prohibit fraudulent conduct against
any health care benefit program, not only federal healthcare programs. Under HIPAA, anyone who knowingly and
willfully executes or attempts to execute a scheme or artifice to defraud any health care benefit program, or to obtain, by
false or fraudulent pretenses, representations or promises, any of the money or property owned or controlled by any
health care program in connection with the delivery of or payment for health care items, benefits or services, is subject to
criminal penalties or fines or imprisonment for up to ten years, or both. Violations which result in serious bodily harm or
death are punishable by more severe criminal penalties.
HIPAA also created a new crime for falsifying, concealing or covering up a material fact in connection with the
delivery of or payment for health care benefits, or making any materially false, fictitious or fraudulent statement or
representation, or making or using any materially false writing or document knowing the same to contain any materially
false, fictitious or fraudulent statement or entry, which is punishable by fines or imprisonment up to five years, or both.
The BBA increased the penalties associated with fraud and abuse. Under the BBA, individuals or entities
convicted of three health care related crimes must be permanently excluded from the Medicare and Medicaid programs.
The BBA gave CMS the authority to refuse to enter into Medicare agreements with a physician or supplier convicted of a
single felony that is determined to be detrimental to Medicare. Additionally, the BBA authorizes civil monetary
penalties to be assessed against entities that contract with an excluded individual or entity and established a toll-free
number for beneficiaries to report fraud and billing irregularities.
Finally, actions which violate the Anti-Kickback Law or similar laws may also involve liability under the
federal civil False Claims Act which prohibits the filing of false claims for payment by Medicare, if the claim is filed
with the knowledge that the claim is false or with deliberate ignorance or reckless disregard for the truth or falsity of the
claim. Each violation of this prohibition under the False Claims Act may be subject to civil penalties up to $11,000, plus
damages of three times amounts paid by Medicare based on false claims. This statute authorizes private persons to file
qui tam actions on behalf of the United States.
Pursuant to the mandates of HIPAA and HITECH, and the added tools provided to HHS and the general public
under HITECH, increased emphasis is being placed on federal investigations and prosecutions of Medicare and Medicaid
“fraud and abuse” cases, and increases in personnel investigating and prosecuting such cases have been reported, which
will most likely result in a higher level of scrutiny of hospitals and health care providers, including the members of the
Combined Group.
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The PPACA strengthens the federal government’s ability to investigate and prosecute health care fraud, and
increases existing penalties for non-compliance. The PPACA provides that under the Anti-Kickback Law, as well as the
federal health care fraud statute (18 U.S.C. § 1347), prosecutors need not prove that a defendant had actual knowledge of
the law or specific intent to violate the law. Moreover, claims for reimbursement submitted to federal health care
programs that result from illegal kickbacks will be considered false or fraudulent for purposes of civil liability under the
Civil False Claims Act, even if the claims are not submitted directly by the wrongdoers themselves. In addition, the
PPACA expands the definition of “federal health care fraud offense” to include illegal kickbacks as well as offenses
committed in violation of the Federal Food, Drug and Cosmetic Act. This change makes additional enforcement tools
available to prosecutors, such as subjecting proceeds from the offenses to criminal forfeiture and authorizing the use of
administrative subpoenas for the production of documents.
The health care industry is governed by a complex web of statutes and regulations which are not always clear in
their interpretation or application. The Combined Group’s policy is to comply with all applicable statutes and
regulations, and the Combined Group has adopted and implemented a corporate compliance program to detect, correct
and, if necessary, report deficiencies. In addition, the Combined Group periodically conducts internal compliance
reviews regarding the Anti-Kickback Law and other related laws and regulations. Management of the Combined Group
believes the members of the Combined Group have used their best efforts to comply with the Anti-Kickback law.
However, because of the breadth of these laws and the narrowness of the “safe harbor” regulations, there can be no
assurance that regulatory authorities will not take a contrary position or that members of the Combined Group will not be
found to have violated the Anti-Kickback Law. At the present time, management of the Combined Group is not aware of
any pending or threatened claim, investigation (including any internal review) or enforcement action regarding the AntiKickback Law, which, if initiated, and if determined adversely to the members of the Combined Group, taken as a whole
and taking into account current reserves, would have a material adverse effect on the financial condition of the Combined
Group.
Laws on Patient Referrals - Stark Law
The Ethics in Patient Referrals Act, known as the “Stark Law,” also prohibits certain types of referral
arrangements between physicians and health care entities. Physicians are prohibited under the original Stark Law
enactment and its 1993 amendment, “Stark II,” from referring patients for “designated health services” which are
reimbursed under the Medicare and Medicaid programs to entities with which they have a financial relationship or in
which they have an ownership interest, unless a so-called Stark “exception” applies. “Designated health services”
include clinical laboratory services, physician therapy services, occupational therapy services, radiology and other
diagnostic services (such as MRIs, CT scans, and ultrasound procedures), durable medical equipment, radiation therapy
services, parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics and prosthetic devices, homehealth services, outpatient prescription drugs, as well as inpatient and outpatient hospital services. The Stark Law also
prohibits the entity receiving the referral from filing a claim or billing for the services arising out of the prohibited
referral. Unlike the Anti-Kickback Law, this proscription applies regardless of whether there has been an intent to
violate the statute. Sanctions for violating Stark Law include denial of (or requirement to refund) payment for tainted
claims, civil monetary penalties of up to $15,000 per improper referral, a civil penalty of up to $100,000 against parties
that enter into a scheme to circumvent Stark Law’s prohibitions, and exclusion from the Medicare and Medicaid
programs. There are several legal theories that can lead to violations of the Stark Law and may serve as a basis for
liability under the False Claims Act.
Stark II has been implemented in phases. Phase I was released on January 4, 2001 and implemented a majority
of the provisions of the Stark Law, certain exceptions and related definitions. Phase II was released on March 26, 2004
and implemented issues not addressed in Phase I, such as ownership and investment exceptions and remaining
exceptions regarding compensation arrangements. Phase III was released on September 5, 2007, and CMS has continued
to modify the physician self-referral regulatory scheme through annual Medicare physician fee schedule and hospital
inpatient prospective payment system rulemaking. The combined effect has been to clarify certain exceptions to the
Stark Law and to create additional exceptions. The requirements imposed by the Stark Law and the final rules continue
to limit the range of acceptable financial relationships with physicians and create situations that could lead to violations
of the basic Stark Law prohibition against self-referrals. The types of financial arrangements between a physician and an
entity that trigger the self-referral prohibitions of the Stark Law are broad, and include ownership and investment
interests and compensation arrangements, both direct and indirect.
The 2009 Inpatient Prospective Payment System Final Rule (“2009 IPPS Final Rule”) published on August 18,
2008, revised the Stark Law regulations, certain provisions of which became effective on October 1, 2008, and certain
provisions of which had a delayed effective date of October 1, 2009. Management of the Combined Group believes that
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its arrangements with physicians have been amended or terminated as of the effective date of the applicable provisions in
the 2009 IPPS Final Rule to comply with the changes required thereby.
The 2009 IPPS Final Rule also contained the final of CMS’s information collection instrument referred to as the
Disclosure of Financial Information Relationships Report (“DFRR”). The DFRR, designed to collect information from
hospitals concerning the ownership and investment interests and compensation arrangements between hospitals and
physicians, was to be sent to around 500 hospitals, which would have 60 days to complete the DFRR and return it to
CMS. CMS had stated that it envisioned the DFRR as a one-time information collection instrument. While it was
previously thought that, based on the information contained in the DFRR and other factors, CMS may propose future
rulemaking to make the DFRR a permanent disclosure requirement, CMS has since postponed the DFRR indefinitely.
Pursuant to the PPACA, the Secretary of HHS developed and implemented a disclosure protocol for use by
providers by which they can disclose to CMS actual and potential violations of the Stark Law. CMS released the selfdisclosure protocol on September 23, 2010, which became effective immediately. Additionally, the PPACA expressly
authorizes CMS to compromise payment and penalty amounts due and owing for violations of the Stark Law.
Although the Stark Law only applies to Medicare, a number of states, including Georgia, have passed similar
statutes pursuant to which prohibitions of physician self-referrals are made applicable to other payors.
The Combined Group attempts to avoid prohibited arrangements with physicians and/or physician groups and to
structure and maintain such arrangements in compliance with the Stark Law, but the law and its related regulations are
complex and highly technical in nature and are revised by government regulators frequently. As a result, there can be no
guarantee that regulatory authorities will not view some arrangements, or the implementation (either initially or ongoing)
of its arrangements, with physicians and/or physician groups as violating the Stark Law. Monetary penalties for
violations of the Stark Law can be significant and sanctions under the Stark Law, including penalties and exclusion from
the Medicare and Medicaid programs, could have a material adverse effect on the financial condition and results of
operations of the Combined Group. In this regard, the Combined Group periodically conducts internal reviews of any
contracts with referral sources and is presently conducting such a review which is not expected to be finalized before the
issuance of the Series 2012 Certificates. At the present time, management of the Combined Group does not anticipate
that any of its internal reviews, and is not aware of any pending or threatened claims, investigations, or enforcement
actions regarding the Stark Law which, if initiated and determined adversely to the members of the Combined Group,
would if taken as a whole and taking into account current reserves, would have a material adverse effect on the financial
condition of the Combined Group.
False Claims Laws
There are principally three federal statutes addressing the issue of “false claims.” First, the Civil False Claims
Act imposes civil liability (including substantial monetary penalties and damages) on any person or corporation that (1)
knowingly presents or causes to be presented a false or fraudulent claim for payment to the United States government;
(2) knowingly makes, uses, or causes to be made or used a false record or statement to obtain payment; or (3) engages in
a conspiracy to defraud the federal government by getting a false or fraudulent claim allowed or paid. Specific intent to
defraud the federal government is not required to act with knowledge. This statute authorizes private persons to file qui
tam actions on behalf of the United States. Disgruntled or unhappy employees or competitors may become plaintiffs and
have a financial incentive to bring suit, as they can recover a portion of the damages awarded.
The Fraud and Enforcement and Recovery Act (“FERA”) signed into law on May 20, 2009, has the potential to
expand exposure under the Civil False Claims Act for a wide range of business transactions involving federal
government funds. Pursuant to FERA amendments, the Civil False Claims Act may impose liability for false claims
with more remote connections to the federal government. FERA also potentially has the effect of expanding liability for
the retention of money owed to the government. Under recent changes in the law, the knowing retention of
overpayments can convert the claims that resulted in overpayments into false claims. FERA makes four other significant
amendments to the Civil False Claims Act. First, it expands protection for “whistleblowers” who lawfully attempt to
stop a violation of the Act. Second, it permits whistleblower plaintiffs to access information gained from government
subpoenas. Third, it authorizes the government to share information provided by whistleblowers with law enforcement
authorities from state or local governments. And lastly, it effectively expands the statute of limitations for actions,
specifying that government complaints relate back to earlier whistleblower complaints for purposes of the statute of
limitations.
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In addition to the Civil False Claims Act, the Civil Monetary Penalties Law authorizes the imposition of
substantial civil money penalties against an entity that engages in activities including, but not limited to, (1) knowingly
presenting or causing to be presented, a claim for services not provided as claimed or which is otherwise false or
fraudulent in any way; (2) knowingly giving or causing to be given false or misleading information reasonably expected
to influence the decision to discharge a patient; (3) offering or giving remuneration to any beneficiary of a federal
healthcare program likely to influence the receipt of reimbursable items or services; (4) arranging for reimbursable
services with an entity which is excluded from participation from a federal healthcare program; (5) knowingly or
willfully soliciting or receiving remuneration for a referral of a federal healthcare program beneficiary; or (6) using a
payment intended for a federal healthcare program beneficiary for another use. The Secretary of HHS acting through the
OIG, also has both mandatory and permissive authority to exclude individuals and entities from participation in federal
healthcare programs pursuant to this statute.
Finally, it is a criminal federal healthcare fraud offense to: (1) knowingly and willfully execute or attempt to
execute any scheme to defraud any healthcare benefit program; or (2) to obtain, by means of false or fraudulent
pretenses, representations or promises any money or property owned or controlled by any healthcare benefit program.
Penalties for a violation of this federal law include fines and/or imprisonment, and a forfeiture of any property derived
from proceeds traceable to the offense.
It is also significant to note that a number of states, including Georgia, have passed similar statutes expanding
the prohibition against the submission of false claims to nonfederal third party payors.
Under the PPACA, Congress provided additional weapons in combating fraud, waste and abuse. The PPACA
and the Reconciliation Amendment greatly expand potential liability under the Civil False Claims Act (even more so
than FERA) and eliminates several longstanding defenses intended to protect against speculative lawsuits. In particular,
the PPACA clarifies the language in the “public disclosure bar” (which until PPACA prohibited a qui tam relator from
bringing a complaint that is based on information already available to the public) and now permits the Department of
Justice to object when a court dismisses claims because the same allegations were publicly disclosed in federal hearings,
congressional reports or investigations, or through the news media. In general, the PPACA expands liability for false
claims.
Hospital providers in many states, including Georgia, also are subject to a variety of state laws, related to false
claims (similar to the Civil False Claims Act or that are generally applicable false claims laws) and anti-kickback
(similar to the federal Anti-Kickback Law or that are generally applicable anti-kickback or fraud laws). These
prohibitions are similar in public policy and scope to the federal laws, and could pose the possibility of material adverse
impact often for the same reasons as the federal statutes.
At the present time, management of the Combined Group is not aware of any pending or threatened claims,
investigations, or enforcement actions regarding the False Claims Act which, if initiated and determined adversely to the
members of the Combined Group, taken as a whole and taking into account current reserves, would have a material
adverse effect on the financial condition of the Combined Group.
Enforcement Affecting Clinical Research
In addition to increasing enforcement of laws governing payment and reimbursement, the federal government
has also heightened enforcement of laws and regulations governing the conduct of clinical trials at hospitals. HHS
elevated and strengthened its Office of Human Research Protections, one of the agencies with responsibilities for
monitoring federally funded research. In addition, the National Institutes of Health significantly increased the number of
facility inspections that these agencies perform. The Food and Drug Administration (“FDA”) also has authority over the
conduct of clinical trials performed in hospitals when these trials are conducted on behalf of sponsors seeking FDA
approval to market the drug or device that is the subject of the research. The FDA’s inspection of facilities has increased
significantly in recent years. These agencies’ enforcement powers range from substantial fines and penalties to
exclusions of researchers and suspension or termination of entire research program. Scrutiny of clinical research,
including research undertaken by community hospitals (like members of the Combined Group) is increasing, leading to
enhanced enforcement activities by various regulatory agencies in this area. At the present time, management of the
Combined Group is not aware of any pending or threatened claims, investigations, or enforcement actions regarding its
clinical research activities which, if initiated and determined adversely to the members of the Combined Group would
have a material adverse effect on the financial condition of the Combined Group.
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Licensing, Surveys, Investigations, and Audits
On a regular basis, health facilities, including those of the Combined Group, are subject to numerous legal,
regulatory, professional and private licensing, certification and accreditation requirements. These include, but are not
limited to, requirements relating to Medicare participation and payment, state licensing agencies, private payors, and The
Joint Commission. The PPACA expands reporting requirements and responsibilities under Medicare and Medicaid
related to nursing home ownership and management, patient safety and care quality. Currently, the facilities of the
Combined Group are licensed under the applicable provisions of federal, State, and local law and are certified for
participation in Medicare and Medicaid or applications for licensure and certifications are pending. These laws, rules,
regulations, and requirements, which relate to the construction, fitness, and adequacy of the physical facilities, the
qualification and adequacy of personnel, and the quality of medical care, are, however, subject to change, and there can
be no guarantee that in the future the Combined Group will not be required to expend substantial sums in order to
maintain licensed, certified, and accredited status. The facilities’ continued licensure and certification to participate in
the Medicare and Medicaid programs depend upon many factors, including, among other things, accommodations,
equipment, services, patient care, safety, personnel, physical environment, and adequate policies, procedures, and
controls. Federal, state, and local agencies survey hospital facilities on a regular basis to determine whether such
facilities are in compliance with governmental operating and health standards and conditions for participating in
governmental reimbursement programs. Such surveys include, but may not be limited to, reviews of patient utilization
and inspection of standards of patient care. The Combined Group will attempt to assure that the facilities are operated in
compliance with applicable licensing and accreditation standards and that they retain licensure and certification to
participate in the Medicare and Medicaid programs. However, to the extent these standards are not met, the licenses of
the facilities could be limited, suspended, or revoked, decertification proceedings could be commenced against them to
exclude them from participating in the Medicare or Medicaid programs, or accreditation could be denied or revised,
adversely affecting the revenues and cash flow of the Combined Group.
In addition to the licenses noted above, various health and safety regulations and statutes apply to the System
and are enforced by various state agencies. Violation of certain health and safety standards could result in closure or
requirements that compliance with such standards be immediately achieved. Management of the Combined Group
believes that the System complies and will comply with all such health and safety standards. These health and safety
standards are, however, subject to change, and there can be no guarantee that in the future the Combined Group will not
be required to expend substantial sums in order to comply with those changed standards.
The availability and cost of health care has become a matter of social and political concern, and a number of
states have adopted legislation to establish rate-setting agencies with control over hospitals and hospital rates. There is a
risk that the State of Georgia could establish such an agency, and any controls adopted thereby could have an adverse
effect on the revenues of the System and the Combined Group. Management of the Combined Group is not aware of any
plans to establish such an agency.
Healthcare Professionals and Other Employees
Possible Staffing Shortages
In recent years, the hospital industry has suffered from an increasing scarcity of nurses, pharmacists, and other
skilled health care technicians to staff its facilities. Factors underlying this industry trend include a decrease in the
number of persons entering these professions. These factors may intensify in years to come, aggravating the shortage of
skilled personnel. Nationally, as a result of the growth in the unemployment rate, these shortages have lessened. As
economic conditions improve, this shortage of skilled professionals and technicians could eventually reappear and could
force the Combined Group to pay higher than anticipated salaries to such personnel or to hire such personnel on a
temporary basis through outside agencies at a higher cost, as competition for such employees intensifies, which would
have the effect of significantly increasing the Combined Group’s personnel costs and which could have a material
adverse effect on the financial results of the Combined Group. Although the System has adequate staffing levels to date
and has had no problems to date recruiting and employing sufficient qualified staffing, it is uncertain whether qualified
candidates will continue to be available to the Combined Group in the future. The Combined Group, like many of its
competitors, has significantly increased salaries in recent years and at times has hired temporary personnel through
outside agencies at higher costs.
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Employment Risks
Health care providers are major employers, combining a complex mix of professional, quasi-professional,
technical, clerical, housekeeping, maintenance, dietary, and other types of workers in a single operation. As with all
large employers, the members of the Combined Group bear a wide variety of risks in connection with their employees.
These risks include strikes and other related work actions, contract disputes, discrimination claims, personal tort actions,
work-related injuries, exposure to hazardous materials, interpersonal torts (such as between employees, between
physicians or management and employees, or between employees and patients), and other risks that may flow from the
relationships between employer and employee or between physicians, patients, and employees. Many of these risks are
not covered by insurance, and certain of them cannot be anticipated or prevented in advance.
As of the date of this Official Statement, management of the Combined Group is not aware of any efforts by any
labor union to organize employees of the Combined Group, and no employees of the Combined Group are currently
represented by unions. As a general matter, health care facilities, however, have been subjected to an increasing number
of union organizational efforts. Unionization of all or some of the Combined Group’s employees could have an adverse
effect on the Combined Group’s financial condition.
The Employee Free Choice Act was introduced in Congress in March 2009 with the stated purpose of amending
the National Labor Relations Act to establish a system that would make it easier for employees to form or join labor
unions and to provide for mandatory injunctions for unfair labor practices during an organizing campaign. Congress has
not passed this legislation. The bill was referred to the House Subcommittee on Health, Employment, Labor, and
Pensions on April 29, 2009, where it has remained. It is not clear if, or when, or in what form, this legislation may be reintroduced. While this proposed legislation was a central issue in Mr. Obama’s presidential campaign in 2008, it did not
play a central role in the 2012 campaign. Regardless, if reintroduced and passed, this or similar legislation would make
it easier for employees of the members of the Combined Group to join and form labor unions.
Wage and Hour Class Actions and Litigation
Federal law and many states impose standards related to worker classification, eligibility and payment for
overtime, liability for providing rest periods and similar requirements. Larger employers with complex workforces, such
as hospitals, are susceptible to actual and alleged violations of these standards. In recent years, there has been an
increase in the number of these “wage and hour” issues, often in the form of large, multi-state class actions. For large
employers such as hospitals and health systems, such class actions can involve multi-million dollar settlements,
judgments or claims. A major class action decided or settled adversely to any member of the Combined Group could
have a material adverse impact on such members and/or the Combined Group’s financial condition and operations.
Currently, no such class action lawsuits are pending against any of the members of the Combined Group.
Insurance Regulation; Professional Liability; General Liability
The State of Georgia has enacted regulations and adopted policies affecting risk assumptions in the health care
industry, including statutes, regulations, and policies that subject hospitals, physicians, and provider networks engaged in
risk-based contracting to applicable insurance laws and regulations, which may include, among other things, laws and
regulations providing for minimum capital requirements and other safety and soundness requirements. The Combined
Group believes that it is currently in compliance with such insurance laws and regulations; however, implementation of
additional regulations or compliance requirements could result in substantial costs to the Combined Group. The inability
to enter into capitated or other risk-sharing arrangements, or the cost of complying with applicable laws in the future that
affect the Combined Group’s risk-based contracting activities, could have a material adverse effect on the Combined
Group’s business, financial condition, and results of operations.
Professional liability and other actions alleging wrongful conduct and seeking punitive damages are often filed
against health care providers, and insurance may not provide sufficient coverage or coverage for punitive damages.
Litigation also arises from the corporate and business activities of hospitals, from a hospital’s status as a property owner,
an employer, a contracting party with physicians, vendors or others, or as a result of medical staff peer review or the
denial of medical staff privileges. As with professional liability, certain of these risks may not be covered by insurance.
For those risks or claims not covered by insurance, they may, in whole or in part, become a direct liability of a member
of the Combined Group if determined or settled adversely.
In 2005, Georgia enacted comprehensive tort reform, which among other things, placed caps on non-economic
damages in medical liability cases. On March 22, 2010, the Georgia Supreme Court, in Atlanta Oculoplastic Surgery,
P.C. v. Nestlehutt, 286 Ga. 731, 691 S.E.2d 218 (2010), declared these caps on non-economic damages unconstitutional
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as violating the state constitutional right to a jury trial, and applied its decision retroactively to the date the law was
enacted in 2005. This decision could negatively impact health care providers in a number of ways, including limiting the
availability, and increasing the cost, of professional liability insurance, increasing the frequency of medical malpractice
claims or suits seeking non-economic damages, and due to the retroactivity of the ruling, making existing reserves and
insurance inadequate to cover existing claims and suits.
There is no assurance that the Combined Group will be able to maintain coverage amounts currently in place in
the future, that the coverage will be sufficient to cover any malpractice judgments rendered against a member of the
Combined Group or that such coverage will be available at a reasonable cost in the future. Additionally, there is no
assurance that malpractice claims or suits against members of the Combined Group will not increase as a result of the
Court’s ruling.
Unfunded Pension Liability
PPHS sponsors a defined benefit pension plan and defined contribution plan. The defined benefit plan was
closed to new entrants as of December 31, 2006. At the end of Fiscal Year 2012, the unfunded projected benefit
obligation was approximately $138,899,000. See “OPERATING AND FINANCIAL DATA – Retirement Plans” in
Appendix A hereto for a more complete discussion.
Business Relationships
Integrated Delivery System - Employed Physicians and Physician Groups
Many hospitals and health systems, including the Combined Group, are pursuing strategies with physicians in
order to offer an integrated package of health care services, including physician and hospital services, to patients, health
care insurers, and managed care providers (an “Integrated Delivery System”). These integration strategies may take
many forms, including physician-hospital organizations (“PHOs”), organizations that are typically jointly owned or
controlled by a hospital and physician group for the purpose of managed care contracting, implementation, and
monitoring. Other integration structures include hospital-based clinics or medical practice foundations, which may
purchase and operate physician practices as well as provide all administrative services to physicians, and acquisitions of
medical and other provider practices. Many of these integration strategies are capital intensive and may create certain
business and legal liabilities for the Combined Group. Another structure is an accountable care organization (“ACO”),
which is a provider-run organization in which the participating providers are responsible collectively for the care of an
enrolled population of patients, and they also may share in savings associated with the quality and efficiency of the care
they provide.
Phoebe Physician Group, Inc. employs approximately 170 primary care and specialty providers. For more
information, see “PHOEBE PUTNEY HEALTH SYSTERM OVERVIEW The Phoebe Putney Health System and
Affiliated Entities” in Appendix A to this Official Statement.
The start-up capitalization for such arrangements, as well as operational deficits, may be funded, in whole or in
part, by the Combined Group. Depending on the size and organizational characteristics of a particular arrangement,
these capital requirements may be substantial. In some cases, the Combined Group may be asked to provide a financial
guaranty for the debt of a related entity that is carrying out an integrated delivery strategy. In certain of these structures,
the Combined Group may have an ongoing financial commitment to support operating deficits, which may be substantial
on an annual or aggregate basis.
These types of integrated delivery arrangements are generally designed to conform to existing trends in the
delivery of medicine, to implement anticipated aspects of health care reform, to increase physician and other provider
availability to the community, or enhance the managed care capability of the affiliated hospital and physicians.
However, these goals may not be achieved, and, if the arrangement is not functionally successful, it may produce
materially adverse results that are counterproductive to some or all of the above-stated goals.
All such integrated delivery arrangements carry with them the potential for legal or regulatory risks in varying
degrees. Such arrangements may call into question compliance with the Medicare anti-referral and other fraud and abuse
laws, relevant antitrust laws, and federal or state tax exemption requirements. While the federal government has issued
regulatory guidance specific to these issues for ACOs participating in the Medicare Shared Savings Program, for other
integrated delivery arrangements, these risks will turn on the facts specific to the implementation, operation, or future
modification of any Integrated Delivery System. The ability of hospitals or health systems to conduct integrated
physician operations may be altered or eliminated in the future by legal or regulatory interpretation or changes, or by
45
health care fraud enforcement. Integrated Delivery Systems that operate at a deficit over an extended period of time may
raise significant risks of investigation or challenge regarding tax-exemption or compliance with the Medicare
anti-referral and other fraud and abuse laws. In addition, depending on the type of arrangement, a wide range of
governmental billing and reimbursement issues may arise, including questions of the authorization of the entity to bill for
or on behalf of the physicians involved. Other related legal and regulatory risks may arise, including employment,
pension and benefits, insurance, fee-splitting, vicarious liability for malpractice claims, and corporate practice of
medicine, particularly in the current atmosphere of frequent and often unpredictable changes in federal and state legal
requirements regarding health care and medical practice. The potential impact of any such regulatory or legal risks on
the Combined Group cannot be predicted with certainty. There can be no assurance that such issues and risks will not
lead to material adverse consequences in the future.
Joint Ventures
The OIG has expressed its concern in various advisory bulletins and advisory opinions that many types of joint
venture arrangements between hospitals and physicians and/or physician groups who are in a referral relationship with
the hospitals implicate the Anti-Kickback Law. In its 1989 Special Fraud Alert, the OIG raised concern about certain
physician joint ventures where the intent is not to raise investment capital to start a business but rather to “lock up a
stream of referrals from the physician investors and compensate these investors directly for these referrals.” The OIG
listed various features of suspect joint ventures, but noted that its list was not exhaustive. These features include: (i)
whether the physician was chosen because he/she is in a position to refer business to the hospital; (ii) whether physicians
are sold interests based on their actual or potential referrals; (iii) whether referrals are tracked and the referral patterns
shared with investors; (iv) whether the overall structure represents a new line of business for the investors (e.g., one of
the parties is an ongoing entity already engaged in a particular line of business); and (v) whether investors’ investment
and return are proportional to the risk assumed by such investors.
In April 2003, the OIG issued a Special Advisory Bulletin, which indicated the “contractual joint ventures”
(where a provider expands into a new line of business by contracting with an entity that already provides the items or
services) may violate the Anti-Kickback Law and that expressed skepticism that existing statutory or regulatory safeharbors would protect suspect contractual joint ventures. In January 2005, the OIG published its Supplemental Program
Guidance for hospitals and reiterated its concerns regarding joint ventures entered into by hospitals.
In addition, under federal tax laws governing Section 501(c)(3) organizations, a tax-exempt hospital’s
participation in a joint venture with for-profit entities must further the hospital’s exempt purposes and the joint venture
arrangement must permit the hospital to act exclusively in the furtherance of its exempt purposes, with only incidental
benefit to any for-profit partners. If the joint venture does not satisfy these criteria, the hospital’s tax-exemption may be
revoked, the hospital’s income from the joint venture may be subject to tax, or the parties may be subject to other
sanctions.
Joint ventures with physicians may also implicate the Stark Law. Any evaluation of compliance with the AntiKickback Law or Section 501(c)(3) requirements depends on the facts and circumstances, but the Stark Law requires
strict compliance with an exception if the prohibition is triggered.
While management of the Combined Group believes that the joint venture arrangements to which members of
the Combined Group are parties are in material compliance with the Anti-Kickback Law, OIG pronouncements, the tax
laws governing Section 501(c)(3) organizations, and the Stark Law, there can be no assurance that regulatory authorities
will not take a different position or that such arrangements will not be found to have violated these laws and regulations,
which could have a material adverse effect on the financial condition of the Combined Group.
Physician Medical Staff
The primary relationship between a hospital and the physicians who practice in such setting is through the
hospital’s organized medical staff. Medical staff bylaws, rules and policies establish the criteria and procedures by
which a physician may have his or her privileges or membership curtailed, denied or revoked. Physicians who are
denied medical staff membership or certain clinical privileges or who have such membership or privileges curtailed or
revoked often file legal actions against hospitals and medical staffs. Such actions may include a wide variety of claims,
including antitrust claims, some of which could result in substantial uninsured damages to a hospital. Furthermore, from
time to time, actions or decisions of hospital management may cause unrest among certain physician groups or members
of the medical staff, which could result in legal or other actions, such as resignation from the medical staff. In addition,
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failure of the hospital governing body to adequately oversee the conduct of its medical staff may result in hospital
liability to third parties.
Worker Reclassification Audits
Employers are required to withhold income taxes from amounts paid to employees. If the employer fails to
withhold the tax, the employer becomes liable for payment of the tax imposed on the employee. On the other hand,
businesses are not required to withhold federal taxes from amounts paid to a worker classified as an independent
contractor. The IRS has established criteria for determining whether a worker is an employee or an independent
contractor for tax purposes. Federal and state officials are starting to aggressively pursue worker misclassification cases,
and the IRS has recently announced that it is conducting audits to determine if companies are misclassifying workers. It
is likely that given the record budget deficits at the federal and the state levels, that enforcement in this area may
increase. If the federal or state officials were to reclassify a significant number of hospital independent contractors (e.g.,
physician medical directors) as employees, back taxes and penalties could be material.
Physician Shortages
Sufficient supply of community-based physicians is important to hospitals and health systems. The shortage of
physicians could become a significant issue for hospitals and health systems to face in the coming years, due to factors
such as the passage of health care reform legislation and continuing decline in the reimbursement rates paid under
Medicare or Medicaid. CMS annually reviews overall physician reimbursement formulas and any changes to these
formulas could lead to physicians locating or relocating their practices in areas with lower Medicare or Medicaid
populations. The Combined Group may be required to invest additional resources for recruiting and retaining
physicians, or may be required to increase the number of employed physicians to continue serving its population base
and maintain market share.
Physician Recruitment and Referrals
The Medicare PPS creates strong financial incentives for hospitals to recruit and retain active physicians who
will admit patients and utilize hospital services. The Combined Group’s response to these incentives is limited, however,
by legal restrictions, including limitations with respect to permitted activities of tax-exempt organizations and federal
and state statutes prohibiting fraud and abuse and certain physician self-referrals. See discussion above on the AntiKickback Law and the Stark Law. As tax-exempt organizations, the members of the Combined Group are limited in
their use of practice income guarantees, rental adjustment on medical office space, low interest loans, joint venture
programs, and other means of recruiting and retaining physicians. According to certain IRS rulings, a hospital using
such means to recruit and retain physicians must demonstrate that the benefits provided to the physicians are incidental
to the public benefits derived from such arrangements and that such benefits do not constitute prohibited private
inurement. The IRS has focused particular attention on the physician compensation arrangements of tax-exempt
organizations in recent years. The Medicare and Medicaid statutes and other laws prohibit the payment of any
remuneration, directly or indirectly, in cash or in kind, to encourage or induce physicians to admit patients or order
services for patients. Other federal and state statutes generally prohibit physicians from referring patients to health care
providers with which they have ownership or other financial interest. Violations of these laws may result in civil and
criminal penalties. Civil penalties range from monetary fines to temporary or permanent exclusion from the Medicare
program. These laws have been construed to apply to many situations where hospitals and physicians conduct joint
business activities, including joint ventures, physician recruitment and retention programs, physician referral services,
hospital-physician service and management contracts, and lending and leasing activities between hospitals and
physicians. The Combined Group engages in the general types of activities described in the preceding sentence and is
not aware of any challenge or investigation of these activities by the Combined Group. HHS has, in recent years,
focused particular attention on physician recruitment and compensation arrangements for possible abuses of Medicare
and Medicaid fraud and abuse laws. The Combined Group intends to comply with these statutes, regulations, and
rulings; such compliance, however, will preclude the Combined Group’s ability to influence directly the volume of
services it provides.
In light of some of the legal restrictions described above, the Combined Group has acquired physician practices
and directly employs certain physicians. The Combined Group’s direct employment of physicians, however, may
implicate the corporate practice of medicine doctrine. The corporate practice of medicine doctrine provides, in general,
that neither a corporation nor any other unlicensed person or entity may engage in the practice of medicine. On its face,
Georgia law does not expressly prohibit corporations such as the members of the Combined Group from directly
employing physicians. As the Georgia legislature has amended the Georgia statutes to remove the language expressly
47
prohibiting the corporate practice of medicine, System management would view any attempt by the Georgia Composite
Medical Board or the Attorney General’s office to invoke the doctrine in Georgia as contrary to the legislative history
and legislative intent of the Georgia statutes.
Antitrust
As described under “THE COMBINED GROUP – The Obligated Group - Phoebe North,” the Authority,
PPMH, and PPHS are is presently involved in litigation with the Federal Trade Commission (the “FTC”) in which the
FTC alleges that an acquisition would substantially lessen competition or tend to create a monopoly in the market in
violation of certain alleged provisions of the Anti-Trust laws. Enforcement of the antitrust laws against health care
providers is becoming more common, and antitrust liability may arise in a wide variety of circumstances, including
medical staff privilege disputes, third party contracting, physician relations, and joint venture, merger, affiliation, and
acquisition activities. In some respects, the application of federal and state antitrust laws to health care is still evolving,
and enforcement activity by federal and state agencies appears to be increasing. In particular, the FTC has publicly
acknowledged increasing enforcement action in the area of physician joint contracting. Likewise, there has been
increased enforcement action relating to hospital mergers. At various times, health care providers may be subject to an
investigation by a governmental agency charged with the enforcement of antitrust laws, or may be subject to
administrative or judicial action by a federal or state agency or a private party. Violation of the antitrust laws could be
subject to criminal and civil enforcement by federal and state agencies, as well as by private litigants.
From time to time, the Combined Group is or will be involved in a variety of activities that could receive
scrutiny under antitrust laws, and it cannot be predicted when or to what extent liability may arise. With respect to payor
contracting, the Combined Group may, from time to time, be involved in joint contracting activity with other hospitals,
providers or Phoebe Health Partners, Inc. The precise degree to which this or similar joint contracting activities may
expose the participants to antitrust risk from governmental or private sources is dependent on a myriad of factual matters
that may change from time to time.
Hospitals, including those of the Combined Group, regularly have disputes regarding credentialing and peer
review, and may be subject to liability in this area. In addition, hospitals occasionally indemnify medical staff members
who are involved in such credentialing or peer review activities, and may also be liable with respect to such indemnity.
Court decisions have also established private causes of action against hospitals that use their local market power
to promote ancillary health care businesses in which they have an interest. Such activities may result in monetary
liability for the participating hospitals under certain circumstances where a competitor suffers business damage.
The ability to consummate mergers, acquisitions, or affiliations may also be impaired by the antitrust laws,
potentially limiting the ability of health care providers to fulfill their strategic plans. Liability in any of these or other
antitrust areas of liability may be substantial, depending on the facts and circumstances of each case.
Affiliation, Merger, Acquisition, and Divestiture
Significant numbers of affiliations, mergers, acquisitions, and divestitures have occurred in the health care
industry recently. See “THE COMBINED GROUP” herein. As part of its ongoing planning process, the Combined
Group may consider the potential acquisition of operations or properties that may become affiliated with or become part
of the Combined Group in the future. As a result, it is possible that the organizations and assets that currently make up
the Combined Group may change from time to time. See “THE MASTER INDENTURE – Admission into Obligated
Group” and “- Withdrawal from Obligated Group” in Appendix C hereto.
Environmental Requirements
The Combined Group is subject to a wide variety of federal, state, and local environmental laws and regulations
that address, among other things, health care operations or facilities and properties owned or operated by health care
providers. Among the types of environmental requirements faced by health care providers are: air and water quality
control requirements; waste management requirements; ground water requirements; specific regulatory requirements
applicable to asbestos, underground storage tanks, polychlorinated biphenyls, and radioactive substances; requirements
for providing notice to employees and members of the public about hazardous materials handled by or located at the
hospital; and requirements for training employees in the proper handling and management of hazardous materials and
wastes. In their role as owners and operators of properties or facilities, health care providers may be subject to liability
for investigating and remedying any hazardous substances that have come to be located on the property, including any
such substances that may have migrated off of the property. Typical health care operations include, in various
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combinations, the handling, use, storage, transportation, disposal, and discharge of hazardous, infectious, toxic,
radioactive, flammable, and other hazardous materials, wastes, pollutants, or contaminants. For this reason, health care
operations are particularly susceptible to the practical, financial, and legal risks associated with compliance with such
environmental laws and regulations. Violation of such environmental laws and regulations may result in damage to
individuals, property, or the environment, may interrupt operations or increase their cost, may result in legal liability,
damages, injunctions, or fines, or may trigger investigations, administrative proceedings, penalties, or other government
agency actions. At the present time, management of the System is not aware of any pending or threatened claim,
investigation, or enforcement action regarding environmental issues which, if determined adversely to the Combined
Group, would have material adverse consequences. There can be no assurance, however, that the Combined Group will
not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or
financial condition of the Combined Group.
Substitution of Security
Under certain circumstances the Certificate Trustee is required to accept a substitute promissory note in
exchange for the 2012 Master Note, which substitute promissory note would be an obligation of a different obligated
group of which the issuer of the Series 2012 Obligation would be a member. This could, under certain circumstances,
lead to the substitution of different security in the form of an obligation backed by an obligated group that is financially
and operationally different than the then existing Obligated Group. That obligated group could have substantial debt
outstanding that would rank on a parity with the substitute obligation.
Prepayment Risks
The Series 2012 Certificates are subject to redemption and purchase, without premium, in advance of their stated
maturity under certain circumstances. See “THE SERIES 2012 CERTIFICATES -- Redemption.” Upon the occurrence of
certain events of default, the payment of the principal of and interest on the Series 2012 Certificates may be accelerated.
Thus, there can be no assurance that the Series 2012 Certificates will remain outstanding until their stated maturities.
Hedging Transactions
Under certain circumstances, the Obligated Group’s interest rate swap agreements (the “Existing Swap
Agreements”) are subject to termination prior to stated maturity. Any additional hedging agreements entered into by the
Obligated Group could also terminate prior to their stated termination dates. Therefore, there can be no assurance that
they will remain in place for the term of the Indebtedness for which they provide a hedge. See “Note 12. Derivative
Financial Instruments” in the audited financial statements included as Appendix B hereto for a description of the
Existing Swap Agreements.
Changes in the market value of the Existing Swap Agreements or any such other agreements could have a
negative impact upon the Obligated Group’s operating results and financial condition, and such impact could be material.
If an existing swap agreement or any other hedging arrangement entered into by the Obligated Group were to be
terminated at a future date when such agreement has a negative value to such members of the Obligated Group, the
members of the Obligated Group would be obligated to make a termination payment, which could be substantial and
could materially adversely affect the financial condition of the Obligated Group.
Under certain circumstances, under the Existing Swap Agreements each of the parties has agreed to collateralize its
obligations. Any requirement of the Obligated Group to further collateralize under the Existing Swap Agreements could
materially adversely affect the financial condition of the Obligated Group. Certain financial covenants in the Master Indenture,
including the liquidity covenant, the covenant limiting dispositions of assets and the covenant limiting certain liens and
encumbrances take into account changes in the mark to market value of the Obligated Group’s swap transactions and
concomitant changes in the collateral requirement. For example, an increase in the amount of collateral posted with respect to all
swap transactions reduces Unrestricted cash available to satisfy the liquidity covenant under the Master Indenture, decreases
certain amounts that the Obligated Group is entitled to transfer or dispose of, and reduces the dollar value of certain Permitted
Encumbrances (as defined in the Master Indenture).
Requirements of Swap Counterparties and Holders of 2012 Bank Certificates
The Master Indenture as well as the Existing Swap Agreements contain and agreements with the holders of the
Series 2012 Bank Certificates, and any future credit arrangements entered into by the Obligated Group may contain, certain
terms that are more restrictive than those described herein, including, among others, requirements that the Obligated Group
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generate a greater debt service coverage ratio, maintain a certain level of unrestricted cash and marketable securities and
maintain certain credit ratings, as well as certain limitations on the incurrence by the Obligated Group of additional
Indebtedness and other obligations and on dispositions of assets, that have been required by banks, municipal bond insurers
and swap counterparties providing such credit facilities. Such terms may be waived by the respective banks, bond insurers
and swap counterparties without notice to or the consent of the holders of the Series 2012 Certificates. Any default under
such terms that is not remedied within any applicable cure period or waived by such bank, bond insurer or swap
counterparty could cause an Event of Default under the Master Indenture, which could result in a decline in the market
value and acceleration of the Series 2012 Certificates.
Maintenance of Exempt Status
The exclusion of interest on each series of the Series 2012 Certificates from the gross income of the recipients
thereof for federal income tax purposes depends upon the maintenance by PPMH of its status as an Exempt
Organization. To maintain such status, PPMH must conduct its operations in a manner consistent with current and future
IRS regulations and rulings governing exempt organizations and its operations and activities. Although PPMH has
covenanted to maintain its status as an Exempt Organization, its failure to do so would likely have a material adverse
effect on PPMH and could result in the inclusion of interest on the Series 2012 Certificates of each series in gross
income of the owners thereof for federal income tax purposes retroactive to the date of issuance.
In certain circumstances, the loss of the exclusion of interest on the Series 2012 Certificates from gross income
of the owners thereof for federal income tax purposes could be retroactive to the date of issuance of the Series 2012
Certificates. The tax liability of the owners of the Series 2012 Certificates for failure to include interest on the 2012
Series Certificates in their gross income may extend to years for which interest was received on the Series 2012
Certificates, or some portion thereof, and for which the relevant statute of limitations has not yet run.
In recent years, the IRS has devoted significant resources to the auditing of tax-exempt health care systems to
determine whether the Exempt Organizations of such systems meet the general criteria for tax-exempt status. These
audits focus on: the relationship between tax-exempt health care providers and private individuals, particularly
physicians; the amount of community benefit provided; compliance with applicable laws, especially the Medicare and
Medicaid fraud and abuse laws; and possible violations of the prohibitions against private inurement and/or private
benefit. The significant amount of scrutiny being brought to bear on Exempt Organizations by the IRS presents a
heightened risk that an Exempt Organization’s exemption might be called into question. Although the Obligated Group’s
management believes that the activities of the members of the Obligated Group that are Exempt Organizations are in
compliance with federal tax laws and IRS standards applicable to Exempt Organizations, no assurance can be given that
the IRS will not assert that one of them has entered into transactions which violate one or more of these rules or
requirements. Such a violation would jeopardize the tax-exempt status of one or more members of the Obligated Group,
as well as the exemption from federal income tax of interest on the Series 2012 Certificates.
The sanctions available to the IRS if an Exempt Organization violates the private inurement or private benefit
rules are not only revocation of tax-exempt status, but also monetary penalties on the Exempt Organization and/or
interested individuals. It is impossible to predict what additional legislation or IRS guidelines or standards might be
promulgated with respect to the maintenance of tax-exempt status by Exempt Organizations.
Recent years have also seen increased efforts by local governments to tax real property owned by Exempt
Organizations. In several instances, such challenges have resulted in settlements whereby Exempt Organizations have
agreed to make payments to local taxing authorities in lieu of taxes. Persistent efforts on the part of state and local
government officials to increase tax revenues, could lead to review of tax exemptions currently afforded in Georgia to
the real property of Exempt Organizations. If these efforts result in taxation of the real property of Exempt
Organizations, the Obligated Group’s operating expenses would be increased.
Limited Protection Against Loss of Tax Exemption
There is no provision for the redemption of the Series 2012 Certificates or for the payment of additional interest
on the Series 2012 Certificates in the event that interest on the Series 2012 Certificates becomes includable in gross
income for federal income tax purposes. In the event that interest on the Series 2012 Certificates becomes includable in
gross income for federal income tax purposes, the value and marketability of the Series 2012 Certificates would likely be
adversely affected. The occurrence of an event that results in the interest payable on the Series 2012 Certificates being
includable in the gross income of the owners of the Series 2012 Certificates for federal income tax purposes is not an
event of default under the Certificate Indenture and does not give rise to a redemption of the Series 2012 Certificates or
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to the payment to the owners of the Series 2012 Certificates of any amount denoted as supplemental interest, additional
interest, penalty interest, liquidated damages, or otherwise, in addition to the amounts otherwise payable to the owners of
the Series 2012 Certificates.
Possible Divestiture of Phoebe North
While management of PPMH believes that it will prevail in the litigation described under the caption “THE
COMBINED GROUP – The Obligated Group - Phoebe North,” if the FTC were to prevail and the Authority and HCA
were required to rescind the transaction so that the Authority must divest itself of the assets comprising Phoebe North
back to HCA, HCA must take back the assets comprising Phoebe North and refund to the Authority the purchase price
less a $35 million rescission fee. If HCA is no longer in business or an order is entered directing divestiture to any
unrelated third party other than HCA, the requirement that HCA refund the purchase price less the $35 million rescission
fee is inapplicable and the Authority would be required to attempt to sell the assets to an unrelated third party and it is
unlikely that the Authority could recoup the investment it has made in Phoebe North or that PPHS would be repaid the
loans it has made to the Authority to finance the acquisition.
Termination of Lease
As described in this Official Statement under the caption “THE SYSTEM - Lease,” PPMH does not own the
Hospital, but leases the Hospital from the Authority pursuant to the hereinafter described Lease, which expires on July
31, 2052.
If PPMH defaults under the Lease, the Authority may terminate the Lease. In the event of such a termination,
PPMH would no longer be entitled to occupy, operate, and receive the revenues from the Hospital. The Authority will
execute and deliver to the Master Trustee an Estoppel Certificate in which it will agree to give the Master Trustee
(1) 60 days’ notice prior to terminating the Lease as a result of any default thereunder by PPMH, and (2) the opportunity
to cure such default within such 60-day period. Notwithstanding the Estoppel Certificate described in the preceding
sentence, there can be no assurance that the Master Trustee will be able to cure any defaults under the Lease and thereby
preserve PPMH’s leasehold interest in the Hospital.
The consequences of terminating the Lease are (1) PPMH will no longer be entitled to occupy, operate, and
receive the revenues from the Hospital, (2) the revenues derived from the Hospital will no longer be subject to the lien
created by the Master Indenture on the Gross Receipts of PPMH, (3) the covenants of PPMH which are contained in the
Master Indenture and which are applicable to the Hospital will no longer be operable as to the Hospital, and (4) PPMH
and PPHS will be dissolved with all assets, except those related to Phoebe Sumter Medical Center and Phoebe Dorminy
Medical Center, reverting to the Authority.
THE AUTHORITY
Introduction
The Authority is a public body corporate and politic and an instrumentality of the State of Georgia created and
existing under the laws of the State of Georgia, particularly the Hospital Authorities Law. The Authority was activated
by resolutions of the Board of Commissioners of Roads and Revenues of Dougherty County and the City Commission of
Albany, Georgia, adopted on July 22, 1941, and August 4, 1941, respectively.
Under the Hospital Authorities Law, the Authority has broad powers to acquire, construct, improve, operate,
alter, and repair hospitals, health care facilities, dormitories, office buildings, clinics, housing accommodations, nursing
homes, rehabilitation centers, extended care facilities, other public health facilities for the use of patients, officers, and
employees of any institution under the supervision and control of the Authority, and all utilities and facilities deemed by
the Authority to be necessary or convenient for the efficient operation thereof. THE AUTHORITY HAS NO TAXING
POWER.
The Authority owns the Hospital. Pursuant to the Lease, the Authority has assigned substantially all of its
assets other than the Lease to PPMH, which, pursuant to the terms of the Lease, has primary responsibility for operation
and management of the Hospital.
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Governing Body
The Hospital Authorities Law provides that the Authority shall be governed by a Board of Trustees of not less
than five nor more than nine members to be appointed by the Board of Commissioners of Dougherty County for
staggered terms, as specified by resolution of the Board of Commissioners of Dougherty County. The Board of Trustees
of the Authority (the “Authority Board”) is presently composed of nine members, all of whom are voting members. The
Hospital Authorities Law requires the members of the Authority Board to be residents of Dougherty County and to elect
one of their number as Chairman and another as Vice Chairman and to elect a Secretary-Treasurer, who need not be a
member of the Board of Trustees. See “PHOEBE PUTNEY HEALTH SYSTEM OVERVIEW - Governing Bodies” in
Appendix A hereto for a list of the current members of the Authority Board, their principal occupations, and respective
terms of office.
THE COMBINED GROUP
Corporate Structure
The expanding range of activities engaged in by hospitals and the changing regulatory climate affecting
hospitals caused the Authority in 1991 to organize a holding company structure including the System, as the parent
corporation of PPMH and other subordinate affiliates providing a variety of health care and related services. The
restructuring was designed to maintain as much flexibility as possible in light of then recent and impending changes to
health care providers. Specific goals included increased flexibility in providing health-related but non-hospital services
and facilities, preserving and protecting assets for use in the development of future health care services, establishing new
operating relationships to obtain capital necessary to support and develop health care programs, and improving Medicare
and Medicaid reimbursement revenues.
The current corporate structure consists of the System and its nine subordinate entities: (1) PPMH, which
operates the Hospital, (2) Phoebe Worth Medical Center, Inc., a non-profit corporation formed to acquire and own
Baptist Worth Hospital in Sylvester, Georgia, (3) Phoebe Sumter Medical Center, Inc., a nonprofit corporation formed to
acquire and lease Sumter Medical Center in Americus, Georgia, (4) Phoebe Dorminy Medical Center, Inc., a nonprofit
corporation formed to manage and subsequently lease Dorminy Medical Center in Fitzgerald, Georgia, (5) Phoebe
Putney Health Ventures, Inc., a for profit corporation formed for the purpose of contracting with purchasers of health
care services and for the purpose of operating an assisted living facility and other activities best conducted by a taxable
entity, (6) Phoebe Foundation, Inc., a nonprofit corporation formed to create and maintain endowment funds and to
solicit and receive contributions on behalf of affiliated exempt entities, (7) Phoebe Putney Indemnity, LLC, whose sole
member is PPHS, formed as a captive insurer to provide general liability, professional liability, personal injury liability,
advertising injury liability, contractual liability, and auto physical damage coverage, (8) Phoebe Physician Group, Inc.,
a nonprofit corporation formed to employ physicians in primary care, subspecialty and specialty practices and to operate
these physician practices, a and (9) Phoebe Health Partners, Inc., a preferred provider organization.
By separating certain activities into separate corporations, the reorganization was designed to permit the
development of a wider range of revenue-generating activities not directly related to the delivery of hospital patient care
services.
Notwithstanding the relationships between these various corporations, PPHS and PPMH are currently the only
members of the Obligated Group or the Combined Group and as such will be solely responsible for payments due under
the Series 2012 Obligation, except to the extent that a related corporation may at some future date be permitted to
become a member of the Obligated Group pursuant to the Master Indenture. There is no present intent to include any
additional members of the Obligated Group or the Combined Group.
The Obligated Group
Phoebe Putney Health System, Inc.
The System is a non-profit corporation duly organized and existing under the laws of the State of Georgia,
determined by the IRS to be an organization as described in Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the “Code”) and not to be a private foundation as defined on Section 509 of the Code.
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Phoebe Putney Memorial Hospital, Inc.
PPMH is a non-profit corporation duly organized and existing under the laws of the State of Georgia. The
Hospital began its operations in 1911. Until December 1, 1991, the Hospital was operated by the Authority. Effective
December 1, 1991, pursuant to the terms of the Lease, the Authority transferred and assigned to PPMH all of the
Hospital’s intangible assets and leased to PPMH the Hospital, together with the site on which it is located and all other
real property owned by the Authority and all improvements and tangible property owned by the Authority and situated
thereon. Concurrently therewith, PPMH assumed all of the obligations of the Authority with respect to the Hospital and
Hospital assets.
PPMH was determined by the IRS on May 23, 1991 to be an organization as described in Section 501(c)(3) of
the Code and not to be a private foundation as defined on Section 509 of the Code. PPMH was subsequently reorganized
as a controlled affiliate of the System, which has received a similar determination letter from the IRS as to its Section
501(c)(3) status. By private letter ruling dated July 29, 1992, the IRS ruled that the reorganization did not adversely
affect the tax-exempt status of PPMH.
Pursuant to the Lease, the Authority has assigned substantially all of its assets other than the Lease to PPMH,
which, pursuant to the terms of the Lease, has primary responsibility for operation and management of the Hospital.
PPMH has delegated the responsibility and authority to conduct their day-to-day business affairs of the Hospital to the
President and Chief Executive Officer of PPMH and a management team.
Phoebe North
On December 15, 2011, the Authority purchased from an affiliate of HCA, Inc. (“HCA”) the assets of the
Palmyra Medical Center, a 248-bed general acute care hospital located in Albany, Georgia. Commencing December 16,
2011, PPMH operated the former Palmyra Medical Center facility under a Management Services Agreement with the
Authority as Phoebe North and continued to do so until August 1, 2012, at which time an amended and restated lease
was entered into between PPMH and the Authority, for the operation of the main campus as well as the Phoebe North
campus. The following paragraph describes pending litigation relating to the acquisition of the former Palmyra Medical
Center.
Federal Trade Commission, Petitioner vs. Phoebe Putney Health System, Inc., Phoebe Putney Memorial
Hospital, Inc., Phoebe North, Inc., HCA, Inc., Palmyra Park Hospital, Inc., Hospital Authority of Albany-Dougherty
County. Case No 11-1160, in the Supreme Court of the United States. In December, 2010, PPHS presented the
Authority with a plan to acquire the assets of Palmyra Medical Center, an HCA affiliated entity in Dougherty County,
Georgia, with funds to be provided by PPHS and to lease such assets to a nonprofit PPHS subsidiary. The terms of the
lease would be essentially the same as the lease arrangement with the Authority by which PPMH operates Phoebe Putney
Memorial Hospital. The Authority approved the purchase of the assets of the Palmyra Medical Center facility and
approved its temporary management by a subsidiary of PPHS. Plans proceeded toward the closure of the acquisition
until the Federal Trade Commission (“FTC”) expressed an interest in the case and asked for certain information to be
produced and asked for a delay in proceeding with the transaction. The Authority, PPMH and PPHS cooperated with the
FTC and agreed to several delays in the closing date upon the requests of the FTC. When the Authority resolved to close
the acquisition on April 21, 2011, the FTC initiated an administrative proceeding on April 19, 2011 to determine whether
the Authority’s purchase and subsequent lease would substantially lessen competition or tend to create a monopoly in the
market in violation of certain alleged provisions of the antitrust laws. Pursuant to that action, the FTC brought an action
on April 20, 2011, to obtain a preliminary injunction against the Authority, PPMH, PPHS, and HCA. While a temporary
restraining order was entered to allow the District Court to look into the matter, respondents moved the District Court to
dismiss the FTC’s complaint, asserting that the “State-Action Immunity Doctrine” immunized respondents from any
anti-trust liability and enforcement by the FTC in that the Authority is the actor in the transaction and is a creature of the
State of Georgia. The District Court agreed and dismissed the FTC’s complaint with prejudice. The FTC appealed the
Order of Dismissal to the United States Court of Appeals for the Eleventh Circuit which took the case on an expedited
basis, and heard argument in October, 2011. On December 9, 2011, the Eleventh Circuit entered judgment affirming the
ruling of the District Court and the dismissal of the FTC action and, citing United States Supreme Court precedent as
well as Eleventh Circuit Court of Appeals precedent, affirmed that the State-Action Immunity Doctrine applied and that
the FTC was not entitled to proceed with its enforcement action. On December 15, 2011, the acquisition was concluded
and the Authority purchased the assets of the Palmyra Medical Center facility. Thereupon, on December 16, 2011,
PPMH operated the former Palmyra Medical Center facility under a Management Services Agreement as Phoebe North
and continued to do so until August 1, 2012, at which time an amended and restated lease was entered into between
PPMH and the Authority, for the operation of the main campus as well as the Phoebe North campus, all as one hospital
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called Phoebe Putney Memorial Hospital. Meanwhile, in March, 2012, the FTC filed a Petition for Certiorari with the
United States Supreme Court asking the Court to accept the case and to review the applicable law as imposed by the
District Court and the Eleventh Circuit Court of Appeals. In June, 2012, the Supreme Court granted a Writ of Certiorari
and agreed to review the case in its Fall, 2012 Term. Oral arguments were heard on November 26, 2012 with a decision
likely no sooner than Spring, 2013. PPHS’s board as well as PPMH’s board, together with the Authority board, all
believe substantial legal precedent supports the decisions made to move forward with the acquisition and lease, and that
both the clear articulations of the law by the Eleventh Circuit Court of Appeals and by the United States Supreme Court
strongly support the dismissal of the FTC’s complaint and the transaction as it has proceeded. An affirmance of the
Eleventh Circuit opinion is expected.
Certain Non-Obligated Group Members of the Combined Group
Phoebe Worth Medical Center, Inc.
Phoebe Worth Medical Center, Inc. (“PWMC”), formed in 2002, is organized as a Georgia non-profit
corporation, which has been determined to be exempt from federal income tax as an organization described under
Section 501(c)(3) of the Code. PWMC was organized to acquire Baptist Worth Hospital, now known as “Phoebe Worth
Medical Center, a 49-bed acute care hospital located in Sylvester, Georgia, approximately 20 miles from the Hospital.
The acquisition of Phoebe Worth Medical Center was financed with a portion of the proceeds of the Series 2002
Certificates. Phoebe Worth Medical Center is designated as a critical access hospital by the State of Georgia Department
of Community Health.
Phoebe Sumter Medical Center, Inc.
On March 1, 2007, Sumter Regional Hospital was destroyed by a tornado and much of the medical community
was forced to leave. In October 2008, PPHS responded to a request from the Americus and Sumter County Hospital
Authority to be a partner in rebuilding the physician community and the Sumter hospital. Effective July 1, 2009, the
Americus and Sumter County Hospital Authority entered into a forty year lease and transfer agreement with Phoebe
Sumter Medical Center, Inc. (“PSMC”) for all the assets, management and governance of Sumter Regional Hospital.
Sumter Regional Hospital was renamed Phoebe Sumter Medical Center. Phoebe Sumer Medical Center, which opened
in December 2011, is currently a 76-bed facility, and its campus has three additional medical buildings housing
physician practices and clinics for oncology and surgery, women’s and family health, orthopedics and wellness.. Services
currently available are: medical, surgical, pediatrics, ob/labor & delivery, coronary care, outpatient surgery, emergency
services, hospice care, cardiopulmonary, radiology, physical therapy, oncology, hematology and rheumatology services,
and wound care. Phoebe Sumter Medical Center employs over 400 employees.
THE HOSPITAL
General Description of the Hospital
The Hospital is a 691 licensed bed general acute care hospital facility located on two campuses in Albany,
Georgia, the fifth largest city in the State, located approximately 170 miles south of the city of Atlanta, Georgia. The
Hospital is the largest hospital in southwest Georgia. Currently, on the main campus approximately 410 beds are staffed
and operated of which 372 are acute care beds and 38 are psychiatric beds. The Hospital Premises and the other real or
personal property currently owned or leased by PPMH (herein collectively, the “PPMH Facilities”) include, in addition
to the Hospital, various health care related facilities servicing the Hospital and the community. These facilities include,
in part, (i) a Women’s Health Center, which provides women’s and children’s services including obstetrics, gynecology,
pediatrics, neonatology and extensive family and community education services currently in the main hospital, (ii) the
Light House facility, which provides temporary lodging for cancer patients and their families, (iii) an inpatient
community hospice facility, (iv) related health, administrative and marketing facilities, (v) a professional office building,
(vi) two urgent care/occupational medicine centers, (vii) a second professional office building, which houses a cancer
program, (viii) a recently renovated Early Childhood Education Building for the children of employees, (ix) a medical
education facility that houses medical students from the Medical College of Georgia and pharmacy students from the
University of Georgia, (x) an employee and volunteer fitness center, and (xi) a multiple building complex on Meredyth
Drive designed to be a destination for outpatient healthcare, including a medical office building, an imaging center, and a
digestive disease center which opened in October 2012.
The Hospital provides a full range of medical and educational services including: comprehensive cardiac
services (catheterization, open heart surgery, angioplasty, mobile echocardiography and related rehabilitation services), a
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special oncology unit including bone marrow transplant services and radiation therapy department, a neonatal intensive
care unit, a regional emergency center, neurodiagnostics services (ambulatory and 24-hour sleep-deprivation
electroencephalograms, audiology and sleep studies), outpatient surgery, cataract surgery, neurology, orthopedics,
urology, renal dialysis, psychiatry, physical therapy, respiratory care, radiology, digestive diseases, a magnetic resonance
imaging center, industrial health services, home care, hospice, urgent care, neonatal services and a mobile renal
lithotripter.
Lease
On December 11, 1990, the Authority and PPMH entered into a Lease and Transfer Agreement, dated
December 10, 1990, and subsequently the same has been as supplemented and amended several times, most recently by
an Amended and Restated Lease and Transfer Agreement, dated as of August 1, 2012 (collectively the “Lease”), under
the terms of which the Authority has leased the Hospital to PPMH for a term of up to 40 years, which expires on July 31,
2052, unless earlier terminated. Under the terms of the Lease, the Authority transferred to PPMH all of its assets for use
in the operation of the Hospital, and PPMH assumed all operating and other liabilities of the Authority and agreed,
among other things, (1) to operate the Hospital for the benefit of the general public and (2) to provide emergency
treatment facilities and to deny no person emergency care due to inability to pay. The Lease provides that it may be
terminated by reason of default under the Lease or upon the expiration of the lease term. Events of default under the
Lease include failure by PPMH to make required payments under the Lease, material breach of a covenant by PPMH,
bankruptcy of PPMH, and abandonment by PPMH of the Hospital. Upon expiration or earlier termination of the Lease,
PPMH is obligated to vacate and surrender possession to the Authority of the leased property and assets used in the
operation of the Hospital as then existing, and all assets of PPMH will revert to and become the property of the
Authority. See “INVESTMENT CONSIDERATIONS - Termination of Lease” herein.
TAX EXEMPTION AND OTHER TAX MATTERS
Opinion of Bond Counsel
Certain legal matters incident to the authorization and issuance of the Series 2012 Certificates are subject to the
approval of McKenna Long & Aldridge LLP, Atlanta, Georgia, Bond Counsel, whose approving opinion will be
available at the time of delivery of the Series 2012 Certificates. It is anticipated that the approving opinion will be in
substantially the form attached to this Official Statement as Appendix D.
The Internal Revenue Code of 1986, as amended (the “Code”), contains a number of requirements and
restrictions that apply to the Series 2012 Certificates. These include restrictions on investments, requirements for
periodic payment of arbitrage profits to the United States, requirements regarding the use of the Series 2012 Certificate
proceeds, requirements regarding the nature and use of the facilities financed or refinanced with the Series 2012
Certificate proceeds, and other restrictions and requirements. The Authority and PPMH have covenanted to comply with
all requirements of the Code that must be satisfied in order for the interest on the Series 2012 Certificates to be excluded
from gross income for federal income tax purposes. Failure to comply with certain of such requirements and restrictions
may cause interest on the Series 2012 Certificates to become subject to federal income taxation, retroactive, in some
cases, to the date of issuance of the Series 2012 Certificates.
In the opinion of Bond Counsel, under existing law, interest on the Series 2012 Certificates (including any
accrued original issue discount) is excludable from gross income for federal income tax purposes and is not an item of
tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it
should be noted that, for the purpose of computing the alternative minimum tax imposed on certain corporations, such
interest is to be taken into account in determining adjusted current earnings. See “-Other Collateral Federal Income Tax
Consequences” below. This opinion is subject to the condition that the Authority and PPMH comply with all
requirements of the Code that must be satisfied subsequent to the issuance of the Series 2012 Certificates in order that
the interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. Failure to
comply with certain of such requirements may cause the inclusion of the interest on the Series 2012 Certificates in gross
income for federal income tax purposes to be retroactive to the date of issuance of the Series 2012 Certificates.
In concluding that interest on the Series 2012 Certificates is excluded from gross income for federal income tax
purposes, Bond Counsel will rely, as to questions of fact material to its opinion, upon the following items, without
undertaking to verify any of them by independent investigation: (a) certified proceedings and other certifications of
public officials furnished to it, (b) certifications furnished to it by or on behalf of PPMH and the Authority (including
certifications made in the tax certificate of PPMH), and (c) representations of the Authority and PPMH contained in such
55
proceedings and in documents delivered in connection with the issuance of the Series 2012 Certificates. If certain of
these items are incorrect, interest on the Series 2012 Certificates may become included in gross income for federal
income tax purposes retroactive, in some cases, to the date of issuance of the Series 2012 Certificates.
Original Issue Discount. The Series 2012 Certificates maturing on December 1, 2028 and on December 1,
2030 through December 1, 2032 (the “Discount Certificates”) have been sold to the public at an original issue discount
(sometimes referred to as “OID”). The aggregate amount of OID on a Discount Certificate is the excess of its stated
redemption price at maturity, which is the principal amount of the Discount Certificate, over its initial offering price to
the public (excluding underwriters and other intermediaries), which is the price at a substantial amount of that maturity
of the Discount Certificates was sold. The aggregate amount of OID on the Discount Certificates is apportioned among
consecutive accrual periods each of six months’ duration except that the first accrual period commences on the issue date
of the Discount Certificates and ends on June 1, 2013. Original issue discount on the Discount Certificates accrues
among accrual periods on a constant yield-to-maturity basis, with the amount of accrued OID allocable to each accrual
period equaling (i) the sum of issue price of such Discount Certificate and the amounts of OID that accrued in all prior
accrual periods multiplied by (ii) the yield to maturity of such Discount Certificate (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (iii) any
interest payable on such Discount Certificate during such accrual period. The amount of accrued OID for any accrual
period will be considered to be received ratably on each day of the accrual period.
As it so accrues, OID will be excluded from gross income for federal income tax purposes, will not be treated as
an item of tax performance for purposes of the federal alternative minimum tax, and will increase the holder’s basis in
such Discount Certificate. In general, proceeds received from the sale, exchange, redemption or payment of a Discount
Certificate in excess of the holder’s adjusted basis (its cost of purchase as increased by the amount of OID that accrued
while the holder owned the Discount Certificates), will not be treated as interest but as gain from the sale or exchange of
such Discount Certificate. Owners who purchase Series 2012 Certificates, including Discount Certificates other than in
the initial offering at the initial offering price will be subject to additional rules. As such, owners should consult their
own tax advisors with respect to the consequences of owning Series 2012 Certificates, including the effect of such
ownership under applicable state and local laws.
Bond Counsel expresses no opinion regarding any other federal tax consequences arising with respect to the
Series 2012 Certificates. See “-Other Collateral Federal Tax Consequences” below for a general discussion of other
selected federal tax consequences associated with ownership of the Series 2012 Certificates.
State of Georgia Income Taxation
In the further opinion of Bond Counsel, the interest on the Series 2012 Certificates is exempt from State of
Georgia income taxation, although the Series 2012 Certificates and the interest thereon may be included in the measure
of State of Georgia estate and inheritance taxes and of certain State of Georgia corporate excise and franchise taxes.
Bond Counsel has not opined as to whether interest on the Series 2012 Certificates is subject to state or local income
taxation in jurisdictions other than Georgia; interest on the Series 2012 Certificates may or may not be subject to state or
local income taxation in jurisdictions other than Georgia under applicable state or local laws. Each purchaser of the
Series 2012 Certificates should consult its own tax advisor regarding the tax-exempt status of the interest on the Series
2012 Certificates in a particular state or local jurisdiction other than Georgia.
Pending Federal Legislation
From time to time, legislative proposals may be made to change federal or state law which, if enacted, would
eliminate the exclusion of interest on tax-exempt bonds from gross income for federal income tax purposes or any state
law exemption or would otherwise diminish the advantages of ownership of tax-exempt bonds for one or more categories
of taxpayers for federal or state law purposes. Pursuant to their terms, any such proposal could, in certain circumstances,
even become effective with respect to tax-exempt bonds issued or purchased prior to enactment or announcement of the
proposal. In addition, from time to time, administrative actions, including regulations, rulings and other administrative
authorities, may be announced or proposed and litigation may be commenced or threatened which, if they become a legal
authority, could eliminate or diminish the advantages of ownership of tax-exempt bonds for one or more categories of
taxpayers for federal or state law purposes. The mere existence or announcement of any such legislative proposal or
announcement commencement or threatening of any such administrative action or litigation could impair the
marketability or market value of the Series 2012 Certificates, at least temporarily, whether or not it is ultimately enacted
into law or become a legal authority.
56
As one example, on September 12, 2011, President Obama submitted to Congress a legislative proposal entitled
the “American Jobs Act of 2011” (the “Jobs Act”), which was introduced as S. 1549 in the United States Senate on
September 13, 2011. If enacted in its current form, a provision in the Jobs Act would increase by a calculated amount the
amount of federal income tax liability or federal alternative minimum tax liability for individual taxpayers with
(1) adjusted gross incomes exceeding certain thresholds, namely $250,000 for taxpayers filing a joint return, $225,000
for heads of household, $125,000 for married individuals filing separate returns, and $200,000 for other individual
taxpayers and (2) adjusted taxable incomes exceeding a different, calculated threshold, namely the maximum amount of
taxable income that a taxpayer (based on his or her status) could receive that would be taxed at marginal federal income
tax rates of less than 36%. In determining whether a taxpayer could be subjected to this complex provision, his or her
adjusted taxable income would first be increased by the amount of any interest on tax-exempt bonds as well as by certain
other adjustments. This provision of the Jobs Act would be effective for taxable years beginning on or after January 1,
2013, but could also adversely affect owners of tax-exempt bonds issued or purchased before that date, including the
owners of the Series 2012 Certificates, by preventing them from realizing the full current benefit of the tax status of
interest on such bonds and by affecting the market price for and marketability of such bonds in the secondary market.
No assurance can be given whether this provision of the Jobs Act or other provisions of a like nature will be enacted into
law.
The opinion expressed by Bond Counsel is based upon the U.S. Constitution and the State of Georgia
Constitution, implemented by statutes enacted thereunder, and as interpreted by judicial, regulatory and other
administrative authorities existing as of the date of issuance and delivery of the Series 2012 Certificates. Bond Counsel
expresses no opinion as of any date subsequent thereto or with respect to any proposed or pending legislation, or
proposed, pending or threatened administrative actions or litigation. Potential purchasers of the Series 2012 Certificates
should consult their tax advisors regarding any pending or proposed legislation, administrative action or litigation of the
type referred to or characterized in the two immediately preceding paragraphs as part of their investment decision and
thereafter, as appropriate.
Other Collateral Federal Tax Consequences
Amortizable Bond Premium. The Series 2012 Certificates other than the Discount Certificates (collectively,
the “Premium Certificates”) were sold to the public with amortizable bond premium. The aggregate amount of
amortizable bond premium equals the excess of the owner’s cost basis, initially the purchase price of bonds, over the
principal amount thereof. Amortizable bond premium accrues on a constant yield-to-maturity basis generally over the
term of bonds. For federal income tax purposes, amortizable bond premium reduces an owner’s adjusted basis in bonds
as it accrues. However, no deduction is allowable for the amortizable bond premium in the case of bonds the interest on
which is excludable from gross income, such as the Premium Certificates. Proceeds received from the sale, exchange,
redemption or payment of a Premium Certificate in excess of the owner’s adjusted basis as so reduced will not be treated
as interest on the Premium Certificates but generally as gain from the sale or exchange of such Premium Certificate.
Other Collateral Federal Tax Consequences. Ownership of the Series 2012 Certificates may result in
collateral federal tax consequences to certain taxpayers, including, without limitation, corporations, financial institutions
and other taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2012
Certificates, property and casualty insurance companies, certain recipients of Social Security or railroad retirement
benefits, foreign corporations with branches in the United States, certain Subchapter S corporations, and taxpayers who
may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2012 Certificates and
taxpayers subject to backup withholding. The following is a general description of certain of these consequences:
1.
Interest on the Series 2012 Certificates may be included in the adjusted current earnings of any entity
owning Series 2012 Certificates which is treated as a corporation for federal income tax purposes (other than any S
corporation, regulated investment company, real estate investment trust or REMIC), and such a corporation may
therefore be required to include as an adjustment in its calculation of alternative minimum taxable income seventy-five
percent of the excess of adjusted current earnings over alternative minimum taxable income (determined without regard
to this adjustment and prior to reduction for certain net operating losses).
2.
No deduction is allowable for interest on indebtedness incurred or continued to purchase or carry the
Series 2012 Certificates or, in the case of a financial institution, that portion of the owner’s interest expense allocated to
interest on the Series 2012 Certificates; however, certain de minimis exceptions may be applicable for owners of Series
2012 Certificates other than financial institutions.
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3.
Property and casualty insurance companies are required to reduce the amount of their deductible
underwriting losses by fifteen percent of their amount of tax-exempt interest, including interest on the Series 2012
Certificates. If the amount of this reduction exceeds the amount otherwise deductible as losses incurred, such excess may
be includable in income.
4.
Certain recipients of Social Security benefits and railroad retirement benefits will be required to
include a portion of such benefits within gross income by reason of receipt or accrual of interest on the Series 2012
Certificates.
5.
A branch-level tax is imposed on certain earnings and profits of foreign corporations with branches in
the United States, and interest on the Series 2012 Certificates may be included in the determination of such domestic
branches’ taxable base on which this tax is imposed.
6.
Passive investment income, including interest on the Series 2012 Certificates, may be subject to federal
income taxation for any Subchapter S corporation that has Subchapter C earnings and profits at the close of the taxable
year, if greater than twenty-five percent of the gross receipts of such Subchapter S corporation is passive investment
income.
7.
Payments of interest on the Series 2012 Certificates are subject to reporting to the Internal Revenue
Service (the “IRS”) and to payees on Form 1099-INT (or successor form). In addition, the Certificate Trustee (or its
agent) may be required to withhold federal tax (referred to as “backup withholding”) from any such payment on a Series
2012 Certificate, which is currently imposed after 2012 at the rate of thirty-six percent of the gross amount of any such
payment, if (i) the owner fails to furnish the Certificate Trustee (or its agent) with his or her taxpayer identification
number (“TIN”), the accuracy of which has been certified under the penalty of perjury, (ii) the Certificate Trustee (or its
agent) has been notified by the IRS that the owner of the Series 2012 Certificate has supplied an incorrect TIN, (iii) the
IRS has notified the Certificate Trustee (or its agent) that the owner of the Series 2012 Certificate has failed properly to
report certain income to the IRS, or (iv) when required to do so, the owner of the Series 2012 Certificate fails to certify
under the penalty of perjury that he or she is not subject to backup withholding.
The foregoing is not intended as a detailed or comprehensive description of all possible consequences of
purchasing or holding the Series 2012 Certificates. Persons considering the purchase of the Series 2012 Certificates
should consult with their tax advisor as to the consequences of buying or holding the Series 2012 Certificates in their
particular circumstances.
LEGAL MATTERS
Pending Litigation
The Obligated Group. In the opinion of Thomas S. Chambless, Senior Vice President and General Counsel of
PPMH, no material litigation is pending or threatened against the System or any affiliate of the System, including
PPMH, not adequately covered by insurance, that would materially adversely affect the financial condition of the
System, PPMH, or the Obligated Group. See “OPERATING AND FINANCIAL DATA – Litigation and Regulatory
Matters” in Appendix A hereto.
The Authority. There is no litigation now pending or, to the knowledge of the Authority, threatened against the
Authority which restrains or enjoins the issuance or delivery of the Series 2012 Certificates, the provision of the security
for the payment of the Series 2012 Certificates, or the use of the proceeds of the Series 2012 Certificates or which
questions or contests the validity of the Series 2012 Certificates or the proceedings and authority under which they are to
be issued. Neither the creation, organization, or existence of the Authority, nor the title of the present members or other
officials of the Authority to their respective offices, is being contested or questioned. There is no litigation pending or,
to the knowledge of the Authority, threatened which in any manner questions the right of the Authority to adopt the
resolutions authorizing the Series 2012 Certificates, to execute, deliver, and perform the Certificate Indenture, or the
Loan Agreement or to secure the Series 2012 Certificates in the manner provided in the Certificate Indenture.
Validation Proceedings
The State of Georgia instituted proceedings in the Superior Court of Dougherty County, Georgia to validate the
Series 2012 Certificates and the security therefor. The State of Georgia was the plaintiff in the proceeding, and the
Authority and the members of the Obligated Group were the defendants. A final judgment confirming and validating the
58
Series 2012 Certificates and the security therefor was entered on November 19, 2012. Under Georgia law, the judgment
of validation is forever conclusive against the Authority and the members of the Obligated Group upon the validity of the
Series 2012 Certificates and the security therefor.
Legal Matters
Certain legal matters will be passed upon for the Authority by its counsel, Perry & Walters, LLP, Albany,
Georgia, for the Obligated Group by its counsel, The Baudino Law Group, Des Moines, Iowa, and Thomas S.
Chambless, its Senior Vice President and General Counsel, and for the Underwriters by their counsel, Peck, Shaffer &
Williams LLP, Atlanta, Georgia. Hammond Hanlon Camp LLC, Atlanta, Georgia, has been employed as financial
advisor to the Obligated Group in connection with the issuance of the Series 2012 Certificates.
Closing Certificates
At closing of the sale of the Series 2012 Certificates by the Underwriters, the Authority, and PPMH will each
deliver to the Underwriters a certificate (1) that no litigation is pending or threatened against it which would have a
material effect on the issuance or validity of the Series 2012 Certificates or the security for the Series 2012 Certificates,
and (2) that the information contained in this Official Statement relating to it does not contain any misstatement of a
material fact and does not omit to state any material fact necessary to make the statements herein contained, in light of
the circumstances under which they were made, not misleading.
MISCELLANEOUS
Ratings
Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services have assigned long-term ratings of
“Aa3” with a stable outlook and “AA-” with a stable outlook, respectively, to the Series 2012 Certificates. The rating
agencies may have obtained and considered information and material which has not been included in this Official
Statement. Generally, rating agencies base their ratings on information and material furnished to them and on
investigations, studies, and assumptions made by them. The ratings reflect only the views of the rating agency, and an
explanation of the significance of each rating may be obtained from the rating agency. There is no assurance that either
or both of such ratings will remain unchanged for any given period of time or that they will not be revised downward or
withdrawn entirely by the rating agency, if, in its judgment, circumstances so warrant. Any such downward revision or
withdrawal of such ratings, or either of them, may have an adverse effect on the liquidity and market price of the Series
2012 Certificates. A further explanation of the significance of each rating may be obtained from the rating agencies.
Underwriting
The Series 2012 Certificates will be purchased for re-offering at negotiated sale by Merrill Lynch Pierce Fenner
& Smith, Incorporated, Morgan Stanley & Co., LLC, and Raymond James & Associates, Inc. (collectively, the
“Underwriters”) from the Authority at an aggregate purchase price $113,867,843, equal to the par amount of the Series
2012 Certificates plus net original issue premium of $6,406,593 and less Underwriters discount of $438,750. The
Underwriters will receive no fee (other than the anticipated profits described in the preceding sentence) from the
Authority for underwriting the Series 2012 Certificates. The purchase contract between the Authority and Merrill Lynch
Pierce Fenner & Smith, Incorporated, as representative on behalf of itself and the other Underwriters, provides that the
Underwriters are obligated to purchase all of the Series 2012 Certificates, if any are purchased, but such obligation will
be subject to various conditions contained in the purchase contract.
The Underwriters intend to offer the Series 2012 Certificates to the public initially at the offering prices set
forth on the cover of this Official Statement, which offering prices may subsequently be changed from time to time by
the Underwriters without any requirement of prior notice. The Underwriters have reserved the right to permit other
securities dealers who are members of the National Association of Securities Dealers, Inc. to assist in selling the Series
2012 Certificates. The Underwriters may offer and sell the Series 2012 Certificates to certain dealers (including dealers
depositing Series 2012 Certificates into investment trusts) at prices lower than the public offering prices set forth on the
cover of this Official Statement or otherwise allow concessions to such dealers who may re-allow concessions to other
dealers. Any discounts or commissions that may be received by such dealers in connection with the sale of the Series
2012 Certificates will be deducted from the Underwriters’ underwriting profits.
Under a common plan of financing, on December 7, 2012, the interest rate on the Series 2008A Certificates and
Series 2008B Certificates will be converted from a daily variable rate with security provided by bank letters of credit to a
59
variable rate based on a percentage of LIBOR plus a credit spread. The converted Series 2008A Certificates and Series
2008B Certificates will be purchased by Banc of America Public Capital Corp. Banc of America Public Capital Corp
and Merrill Lynch, Pierce, Fenner & Smith, Inc. are both wholly-owned subsidiaries of Bank of America Corporation.
Morgan Stanley and Citigroup Inc., the respective parent companies of Morgan Stanley & Co. LLC and
Citigroup Global Markets Inc., have entered into a retail brokerage joint venture. As part of the joint venture, each of
Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. will distribute municipal securities to retail investors
through the financial advisor network of a new broker-dealer, Morgan Stanley Smith Barney LLC. This distribution
arrangement became effective on June 1, 2009. As part of this arrangement, each of Morgan Stanley & Co. Incorporated
and Citigroup Global Markets Inc. will compensate Morgan Stanley Smith Barney LLC for its selling efforts in
connection with their respective allocations of the Bonds.
On April 2, 2012, Raymond James Financial, Inc. (“RJF”), the parent company of Raymond James &
Associates, Inc. (“Raymond James”), acquired all of the stock of Morgan Keegan and Company (“Morgan Keegan”)
from Regions Financial Corporation. Raymond James and Morgan Keegan are each registered broker-dealers. Both
Raymond James and Morgan Keegan are wholly owned subsidiaries of RJF and, as such, are affiliated broker-dealer
companies under the common control of RJF, utilizing the trade name “Raymond James | Morgan Keegan” that appears
on the cover of this Official Statement. It is anticipated that the businesses of Raymond James and Morgan Keegan will
be combined.
Raymond James has entered into a distribution arrangement with Morgan Keegan for the distribution of the
Series 2012 Certificates at the original issuer prices. Such arrangement generally provides that Raymond James will
share a portion of its underwriting compensation or selling concession with Morgan Keegan.
The Underwriters and their respective affiliates are full service financial institutions engaged in various
activities, which may include securities trading, commercial and investment banking, financial advisory, investment
management, principal investment, hedging, financing and brokerage services. Certain of the Underwriters and their
respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and
investment banking services for Authority and the Combined Group for which they received or will receive customary
fees and expenses.
In the ordinary course of their various business activities, the Underwriters and their respective affiliates may
make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities,
which may include credit default swaps) and financial instruments (including bank loans) for their own account and for
the accounts of their customers and may at any time hold long and short positions in such securities and instruments.
Such investment and securities activities may involve securities and instruments of the Authority and the Combined
Group.
The Underwriters and their respective affiliates may also communicate independent investment
recommendations, market color or trading ideas and/or publish or express independent research views in respect of such
assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or
short positions in such assets, securities and instruments.
Financial Advisor
Hammond Hanlon Camp LLC and its wholly-owned subsidiary, H2C Securities Inc., (the “Financial Advisor”)
have served as financial advisor to the Borrower and PPMH for purposes of assisting with the structuring of the 2012
Certificates. The Financial Advisor is not obligated to undertake, and has not undertaken, an independent verification of
nor does the Financial Advisor assume responsibility for the accuracy, completeness, or fairness of the information
contained in this Official Statement. The Financial Advisor is an independent healthcare capital advisory firm and has
not been engaged in the underwriting or distribution of the 2012 Certificates.
Independent Auditors
The consolidated financial statements of Phoebe Putney Health Systems, Inc. as of July 31, 2012 and 2011, and
for the years then ended, included in this Official Statement as Appendix B, have been audited by Draffin & Tucker,
LLP, independent auditors, as stated in their report thereon which appears in Appendix B hereto.
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Certain Relationships
McKenna Long & Aldridge LLP, Bond Counsel, has represented, currently represents, and may in the future
represent one or more of the Underwriters and the Master Trustee and Certificate Trustee in unrelated matters. Peck,
Shaffer & Williams LLP has represented and may in the future represent the Master Trustee and the Certificate Trustee
in unrelated matters.
Continuing Disclosure
In order to provide certain continuing disclosure with respect to the Series 2012 Certificates in accordance with
Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as
the same may be amended from time to time (“Rule 15c2-12”), the Obligated Group has entered into a Disclosure
Dissemination Agent Agreement (“Disclosure Dissemination Agreement”) for the benefit of the owners of the Series
2012 Certificates with Digital Assurance Certification, L.L.C. (“DAC”), under which the Obligated Group has
designated DAC as Disclosure Dissemination Agent. The form of Disclosure Dissemination Agreement is attached as
Appendix E.
The Authority has no responsibility to provide any information, now or in the future, regarding either itself or
the Obligated Group.
Each of the Prior Obligations is exempt from the continuing disclosure requirements of Rule 15c2-12 because
each of the Prior Obligations are issued in denominations of $100,000 or more and at the option of the holders thereof
may be tendered to the issuer or its designated agent for redemption or purchase at par value or more at lease as
frequently as every nine months until maturity, earlier redemption, or purchase by the issuer or its designated agent.
Notwithstanding the exemption from the Rule 15c2-12 continuing disclosure requirements, PPMH has voluntarily made
continuing disclosure filings on EMMA since the issuance of the Series 2008A and Series 2008B Certificates.
In the Disclosure Dissemination Agreement, the Obligated Group has agreed to provide audited financial
statements of the System within 150 days of the fiscal year end and quarterly unaudited financial statements of the
System within 60 days of the end of each fiscal quarter. The annual financial statements for each fiscal year will be
accompanied by the Utilization of the System Facilities and Sources of Combined Gross Patient Service Revenues,
substantially in the form contained in Appendix A hereto and the computation of the Debt Service Coverage, the Days
Cash on Hand and Debt to Capitalization Ratio substantially in the form contained in Appendix A hereto as of the end of
such fiscal year. In addition, the Obligated Group is required to give notice of any of the Notice Events described in the
Disclosure Dissemination Agreement.
A breach by the Obligated Group of its disclosure obligations thereunder does not constitute a breach under the
Master Indenture or the Obligations, and as such, in the event of any such breach, the only available remedy is to
institute legal or equitable action to enforce Obligated Group’s obligation to make the disclosures specified therein.
Additional Information
Use of the words “shall,” “must,” or “will” in this Official Statement in summaries of documents or laws to
describe future events or continuing obligations is not intended as a representation that such event or obligation will
occur but only that the document or law contemplates or requires such event to occur or obligation to be fulfilled.
Any statements made in this Official Statement involving estimates or matters of opinion, whether or not so
expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the
estimates or matters of opinion will be realized. Neither this Official Statement nor any statement which may have been
made orally or in writing is to be construed as a contract with the owners of the Series 2012 Certificates.
The delivery of this Official Statement, and its distribution and use by the Underwriters, have been duly
authorized and approved by the Authority and the Obligated Group.
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APPENDIX A
PHOEBE PUTNEY HEALTH SYSTEM
TABLE OF CONTENTS
PHOEBE PUTNEY HEALTH SYSTEM OVERVIEW .......................................................................................... A-1
Introduction .......................................................................................................................................................... A-1
Historical Background .......................................................................................................................................... A-2
The Phoebe Putney Health System and Affiliated Entities .................................................................................. A-2
Community Hospitals ........................................................................................................................................... A-2
Urgent Care Centers and Affiliated Services ....................................................................................................... A-3
Phoebe Physician Group ...................................................................................................................................... A-3
Phoebe Foundation, Inc. ....................................................................................................................................... A-3
Phoebe Health Partners, Inc. ................................................................................................................................ A-3
Phoebe Putney Indemnity, LLC ........................................................................................................................... A-3
Phoebe Putney Health Ventures, Inc. ................................................................................................................... A-3
Organizational Chart of the System and Wholly-Controlled Affiliates................................................................ A-4
Obligated Group ................................................................................................................................................... A-4
Governing Bodies ................................................................................................................................................. A-4
Conflict of Interest Policy .................................................................................................................................... A-6
Corporate Officers of the System ......................................................................................................................... A-6
Location of Facilities ............................................................................................................................................ A-8
SYSTEM FACILITIES AND OPERATIONS ......................................................................................................... A-8
Phoebe Putney Memorial Hospital ....................................................................................................................... A-8
Phoebe Sumter Medical Center ............................................................................................................................ A-9
Phoebe Worth Medical Center ............................................................................................................................. A-9
Southwest Georgia Regional Medical Center .................................................................................................... A-10
Dorminy Medical Center .................................................................................................................................... A-10
Rural Clinics....................................................................................................................................................... A-10
Other Facilities ................................................................................................................................................... A-10
Services Offered by the System ......................................................................................................................... A-11
MEDICAL STAFF ................................................................................................................................................. A-12
System Medical Staff as of July 31, 2012 .......................................................................................................... A-12
EMPLOYED PHYSICIANS .................................................................................................................................. A-12
EMPLOYEES......................................................................................................................................................... A-13
MEMBERSHIPS AND ACCREDITATIONS ....................................................................................................... A-13
KEY RELATIONSHIPS ........................................................................................................................................ A-13
CAPITAL EXPENDITURES................................................................................................................................. A-14
NEW PROJECTS ................................................................................................................................................... A-14
SERVICE AREA DEMOGRAPHICS ................................................................................................................... A-15
COMPETITION ..................................................................................................................................................... A-16
OPERATING AND FINANCIAL DATA ............................................................................................................. A-18
Utilization of System Facilities .......................................................................................................................... A-18
Sources of Combined Gross Patient Service Revenues ...................................................................................... A-18
Summary of Combined Revenues and Expenses ............................................................................................... A-19
Historical Balance Sheets ................................................................................................................................... A-20
Historical and Pro forma Debt Service Coverage............................................................................................... A-21
Historical Liquidity – Days-Cash-on-Hand ........................................................................................................ A-21
Historical Capitalization – Debt to Capitalization Ratio .................................................................................... A-22
Management’s Discussion of Recent Financial Performance ............................................................................ A-23
Retirement Plans ................................................................................................................................................ A-24
Investment Policy ............................................................................................................................................... A-25
Insurance ............................................................................................................................................................ A-26
Litigation ............................................................................................................................................................ A-26
PHOEBE PUTNEY HEALTH SYSTEM OVERVIEW
Introduction
Phoebe Putney Health System, Inc. (the “System”) operates a network of not-for-profit community
hospitals, physician groups and affiliated services that provide progressive, quality health care to more than 450,000
residents in its service areas covering 36 counties in Southwest Georgia.
The System was formed in 1991, as a non-profit corporation under Georgia law, and is the parent company
of the following entities:
Phoebe Putney Health System, Inc.*
Phoebe Putney Memorial Hospital, Inc.*
Phoebe Worth Medical Center, Inc.
Phoebe Sumter Medical Center, Inc.
Phoebe Dorminy Medical Center, Inc.
________________
*Part of the Obligated Group
For Profit corporation
Phoebe Putney Health Ventures, Inc.
Phoebe Physician Group, Inc.
Phoebe Foundation, Inc.
Phoebe Putney Indemnity, LLC
Anchored since 1911 by Phoebe Putney Memorial Hospital, Inc. (the “Hospital” or “PPMH”) near
downtown Albany, the Hospital is the region’s leading provider of cancer, heart, obstetrical care, mental health
services, emergency treatment and family medicine. The System has 792 licensed hospital beds in three regional
facilities, including 691 licensed beds at its two facilities in Albany. The System also manages another 100 licensed
beds within its secondary and tertiary service area. Services provide residents with a continuum of care from
prevention and screening programs to advanced medicine and specialties.
LICENSED AND OPERATED BEDS
Hospital
Obligated Group Members:
Phoebe Putney Memorial Hospital
Total Obligated Group Members
Affiliated Group Members:
Phoebe Worth Medical Center
Phoebe Sumter Medical Center
Total Affiliated Group Members
Georgia Location
City
County
2013
Licensed Operated
Albany
Dougherty
443
443
413
413
691
691
523
523
Sylvester
Americus
Worth
Sumter
25
76
101
25
76
101
25
76
101
25
76
101
544
514
792
623
25
75
100
25
75
100
25
75
100
25
75
100
644
614
892
723
PPHS (“System”) Consolidated Total
Managed Group Members:
Southwest GA Regional Med Center
Dorminy Medical Center
Total Managed Group Members
2012
Licensed Operated
Cuthbert
Fitzgerald
Randolph
Ben Hill
PPHS (“System”) Consolidated & Managed Total
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Historical Background
The Hospital was founded by a group of community volunteers who secured an establishing donation from
Judge Francis Flagg Putney in 1909. The Hospital opened in 1911 with three stipulations from the benefactor: that it
be built of brick to withstand fire; named for his mother; and that it treat all persons. The Hospital continues to
uphold that mission today.
In 1941, the Hospital Aid Association, owners and founders, recognized the need to expand services and
build new facilities for the citizens of the community. They turned the Hospital over to a newly created Hospital
Authority of Albany and Dougherty County, the first such authority in Georgia. Under the Authority, the Hospital
grew, adding new facilities and services. But by 1990, regional demand for services increased, and the Authority
realized it would need to restructure to deliver services beyond 12 miles outside Dougherty County. In 1991, the
Authority restructured, leasing its assets to Phoebe Putney Memorial Hospital, Inc. to operate the Hospital. The
System, a parent holding corporation, was created. The System grew to include four rural community hospitals, two
owned and two managed. Two of the System’s five facilities are critical access hospitals, including the first one in
Georgia. The System today operates several rural primary care practices and specialty clinics for cardiac and cancer
treatment both in its facilities and through partnerships with sister not-for-profit hospitals in the region.
The Phoebe Putney Health System and Affiliated Entities
The Hospital is the system flagship, and today includes a second free-standing facility, Phoebe North,
located in Albany. The Hospital’s inpatient admissions approach 25,000 annually, with approximately 16,500
surgeries, 3,000 deliveries and almost 100,000 emergency center visits and 41,000 urgent care visits. Patients visit
Hospital clinics nearly 575,000 times annually. The Hospital offers comprehensive health care services, including
inpatient adult and pediatric medical and surgical care, cancer, cardiac, adult and neonatal critical care, obstetrics,
behavioral health, physical and sports medicine, outpatient surgical services, a full range of diagnostic imaging and
laboratory, inpatient and outpatient rehabilitation, sleep disorders, neurological surgery, neurology, orthopedics and
emergency services. The System also provides home health and assisted living services, as well as occupational and
corporate health services and a wide range of specialty outpatient services, including occupational health, diabetes,
wound care and community health outreach programs.
The Hospital is also a teaching hospital and is a strong advocate for graduate medical education. It is the
first off-site clinical campus for the Georgia Health Sciences University for third and fourth year medical students.
The Hospital also operates the Southwest Georgia Family Medicine Residency program, which was originally
funded in 1993 by the Georgia General Assembly to eliminate shortages of primary care doctors in rural Georgia.
The program graduates six primary care physicians annually and has been highly successful in placing more than 70
percent of those graduates in rural practices in the region and other areas of Georgia. The Hospital also has a
pharmacy residency program with the University of Georgia.
Community Hospitals
Phoebe Putney Memorial Hospital (Main Campus), Albany, Leased, a 443-bed facility offering
comprehensive health care services in virtually every specialty and subspecialty, including cancer, heart and
obstetrical care, mental health services, emergency treatment, family medicine and a 18-bed inpatient hospice
center.
Phoebe Putney Memorial Hospital (North Campus), Albany, Leased, a 248-bed facility offering acute
adult patient care and outpatient services, including inpatient physical rehabilitation and corporate and occupational
health services.
Phoebe Worth Medical Center, Sylvester, Owned, a 25-bed critical access hospital offering a 24-hour
emergency center, medical-surgical care, pediatrics and women’s health services and sleep disorders.
Phoebe Sumter Medical Center, Americus, Leased, a 76-bed facility offering medical-surgical care,
orthopedics, obstetrics, oncology, cardiology and emergency medicine.
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Dorminy Medical Center, Fitzgerald, Managed, a 75-bed facility offering cancer, cardiology, obstetrical
care, pediatrics, rehabilitation, wound care, sleep study, hospice services and surgery. Dorminy Medical Center is
managed by Phoebe Dorminy Medical Center, Inc.
Southwest Georgia Regional Medical Center, Cuthbert, Managed, a 25-bed critical access hospital
offering a 24-hour emergency center, primary care clinic, and an 80-bed nursing home.
Urgent Care Centers and Affiliated Services
Phoebe ConvenientCare Centers, Albany, Phoebe’s two ConvenientCare centers are a cost-effective
alternative to emergency room care for minor injuries and ailments such as flu, fever, burns, cuts and falls. These
centers aid in keeping ED visits appropriate in levels of acuity.
Meredyth Place, Albany, is a 120,000 square-foot “health destination” offering a digestive health center,
diagnostic, orthopedic and optical services in an environment featuring walking trails and healing gardens.
Phoebe East, Albany, houses a ConvenientCare center; a Corporate Health center designed to help
organizations manage employee injuries and workplace productivity; the Total Life Center, which offers holistic
programs for obesity, stroke, diabetes, high blood pressure, smoking, and stress-related illnesses; and a Conference
Center.
Phoebe Northwest, Albany, houses a ConvenientCare center; Phoebe Physical and Sports Medicine
Department, physical, and cardiac rehabilitative services; the Southwest Georgia Family Practice Residency
Program; and, the Phoebe Family Care Center.
Phoebe Physician Group
The Phoebe Physician Group (“PPG”) is an incorporated entity employing approximately 169 physicians
in primary care, subspecialty and specialty practices. Staff includes 440 employees. The PPG serves the System in
its six hospitals and numerous clinic sites throughout the region, including 19 clinics outside Dougherty County.
Phoebe Foundation, Inc.
The Phoebe Foundation was established to raise funds of any kind or character to be used exclusively for
charitable, medical, educational and scientific purposes at or in connection with the Hospital or the Hospital
Authority of Albany-Dougherty County, Georgia.
Phoebe Health Partners, Inc.
Phoebe Health Partners (“PHP”) was incorporated in 1995 to develop an appropriate health care delivery
system for purposes of contracting with purchasers of health care services and for the purpose of establishing,
operating, and maintaining a physician-hospital organization. The PHP members consist of local area doctors and
PPMH.
Phoebe Putney Indemnity, LLC
Phoebe Putney Indemnity (“PPI”) was organized August, 2006 as a single parent captive under the
captive insurance laws of the state of South Carolina to insure the risks of the System in southwest Georgia. PPI
provides general liability, professional liability, personal injury liability, advertising injury liability, contractual
liability and auto physical damage coverage to the System. PPI is a successor to off-shore based captive originally
established in 2001.
Phoebe Putney Health Ventures, Inc.
Phoebe Putney Health Ventures (“PPHV”) is a for-profit Georgia corporation that is a wholly owned
subsidiary of the System. The corporation engages in healthcare and related activities in furtherance of the exempt
purposes of the System and PPMH. PPHV owns Morningside of Albany, LLC, an assisted living facility with 65
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beds in Albany, Ga., a Starbucks Corporation franchise with two locations in Albany, Ga., and a 50% ownership in
Welforce, LLC, a health benefits Third Party Administrator (TPA) aimed at giving self-funded groups custom
solutions which includes benefit plans, wellness management, self-insurance, stop-loss programs, workplace injury
solutions and other solutions.
Organizational Chart of the System and Wholly-Controlled Affiliates
*The Obligated Group is highlighted in yellow on the Organizational Chart above.
Obligated Group
The Obligated Group is comprised of the System and the Hospital. The Audited Financial Statements
included in Appendix B to this Official Statement contain the Consolidated Financial Statements of Phoebe Putney
Health System, Inc., and its controlled affiliates. Such Consolidated Financial Statements include controlled
affiliates that are not members of the Obligated Group. The Obligated Group accounted for 97% and 99% of the
Consolidated Assets for fiscal years ended July 31, 2012 and 2011, respectively, accounted for 89% and 98% of the
Consolidated Net Assets for the fiscal years ended July 31, 2012 and 2011, respectively. The Obligated Group’s
percentage of Consolidated Assets and Consolidated Net Assets for the fiscal years ended July 31, 2012 and 2011,
respectively, exclude intercompany eliminations included in the consolidated financial statements included in
APPENDIX B hereto.
Governing Bodies
As authorized by local legislation, the Hospital Authority of Albany-Dougherty County, Georgia bylaws
and by resolution of the Dougherty County Commission, the Members of the Hospital Authority of AlbanyDougherty County are appointed by the Dougherty County Commissioners to five year terms with a two term
limitation on membership, with the exception that PPMH’s Chief of Staff serves a two-year term on the Authority
that coincides with his or her term as Chief of Staff. Members of the Authority Board are appointed by the
Dougherty County Commission in December, and any expiring term would be filled during that period so as to
avoid any lapse in the board seats.
The System and PPMH Board of Directors are appointed by the System’s Board of Directors based on
recommendations from the System’s Nominating Committee. Members of each of these boards serve five year
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terms with no limitation on service. Each board has one slot that is a two year term designated for a member of the
medical staff, and by custom the sitting Chief of Staff has usually served on PPMH’s board and the immediate past
Chief of Staff has served on PPHS’ board. Those (Phoebe) board members whose terms expire in the current year
will be filled by a process provided for in their respective bylaws and the bylaws of PPHS. The process is governed
by action which comes through the PPHS Nominating Committee making nominations to the PPHS Board of
Directors which elects all board members. This may involve reappointment of a member whose term is expiring,
but, in any event, ordinarily occurs with no lapse in the various board seats.
MEMBERS
Name and Office
Business or Profession
Ralph Rosenberg, Chairman
Chuck Lingle, DVM, Vice-Chairman
John Inman, Jr. MD, Asst. Secretary
Rev. Eugene Sherman, Secretary/Treasurer
Rev. H. B. Johnson
Lamar Reese
Steven Wolinsky, MD
John Hayes
Fred Ghiglieri
Retired Businessman
Retired Veterinarian-DVM
Retired Physician, OB Gyn
Minister/Professor
Minister
Real Estate
Physician, Cardiologist
County Commissioner/Banker
Retired Engineer
Current Term Expires
on December 31
2015
2015
2012
2013
2013
2012
2012
2015
2015
PHOEBE PUTNEY HEALTH SYSTEM, INC.
BOARD OF DIRECTORS
on January
Name and Office
Lemuel Griffin, Chairman
Laurence Crimmins, MD
Anthony Parker
John Phillips, III
Lamar Moree, MD
Bruce Melton
CEO, Flint River
Physician, Family Practice
President/CEO, Albany Technical College
President, Applied Cable Technology
Physician, Anesthesiology
President, Oxford Construction Company
2015
2014
2016
2017
2014
2017
Wilhelmina Hall
James Wood, MD
Will Sims, Vice Chairman
Retired Personnel Director, Dougherty County
School System
Physician, OB Gyn
Retired President/CEO SunTrust Bank
2014
2016
2014
Jyotir Mehta, MD
Brad Lefevers
Joel Wernick
Physician, Pulmonary, Critical Care and Internal
Medicine
President CEO/Atlantic Western Transportation
President/CEO, PPHS
Board Member Emeritus:
Anna McCormack
Tom Law
Retired
Retired
PHOEBE PUTNEY MEMORIAL HOSPITAL, INC.
BOARD OF DIRECTORS
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2013
2015
on January
Name and Office
John Culbreath, Chairman
Mary Helen Dykes, Vice Chairman
Bernard Scoggins, MD
Hasan Rizvi, MD
Retired Superintendent of Dougherty County
School System
Retired Owner, Bobs Candies
Physician, Internal Medicine
Physician, Nephrology
2013
2014
2013
2014
Ronald Wallace
Mark Lane
Tim Dill
Steven Wolinsky, MD
Deputy Site Manager, Albany Operations
Jacobs Advanced Systems Group
President, Security Bank & Trust
Plant Manager, MillerCoors
Physician, Cardiologist
2015
2016
2015
2013
Sally Whatley, PhD
Retired Superintendent of Dougherty County
School System
2016
Kimberly Fields, EdD
Clay Banks
Karen Iler
Joel Wernick
Special Education Coordinator, Albany State
University
General Manager, Equity Group GA Division
CFO, Woodford Plywood, Inc
President/CEO, PPHS
2014
2014
2016
Conflict of Interest Policy
The Bylaws of the Borrowers contains conflict of interest provisions as follows: No Director shall use his
or her position on the Board of Directors for financial, political, or other self-interest that could be interpreted by the
Board of Directors or the Corporation as not being in the Corporation’s best interests, and the Director shall
maintain unselfish loyalty to the Board of Directors and will disclose to the entire Board of Directors the full
particulars of his or her financial interest in any matter under consideration by the Board of Directors. Each Director
(whether a voting or non-voting member of the Board of Directors) shall file a “No Conflict of Interest and Loyalty”
statement with the Chairperson of the Board of Directors. Said statement shall be in such form as approved by the
Board of Directors from time to time. If, in the view of the Director or of the Board of Directors, an interest of a
Director in a matter under consideration by the Board of Directors may interfere with the exercise of such Director’s
unselfish loyalty to the Corporation or may pose a conflict between duty and self-interest, the Director shall neither
vote on the issue nor participate in the discussion, but shall leave the room and the minutes shall so reflect that he or
she left the room and neither voted nor participated in discussion on the issue (nevertheless the presence of a
Director with voting rights may be counted for purposes of establishing a quorum).
Corporate Officers of the System
Among the current key officers of the System are:
Joel Wernick has served as President/CEO of the System since 1988. Mr. Wernick, age 58, holds a
bachelor’s degree in business administration from the University of Arkansas and a master’s degree in hospital
administration from Xavier University in Cincinnati, Ohio. A Fellow of the American College of Healthcare
Executives and director of the VHA, Mr. Wernick also serves on the board of VHA-Georgia and the Georgia
Alliance of Community Hospitals.
Joe Austin is executive vice president and chief operating officer for the System and has more than 25
years of diverse experience in health care. Before joining PPHS, Mr. Austin, age 55, was chief executive officer at
North Fulton Regional Hospital in Roswell, Georgia, and served as the chief executive officer for the Huntsville
Hospital System for more than 12 years. Mr. Austin earned a bachelor’s degree in psychology and a master’s degree
in business administration from the University of Alabama.
A-6
Kerry Loudermilk is a certified public accountant and senior vice president and chief financial officer at
the System. Mr. Loudermilk, age 57, has more than 25 years of experience in health care and more than 20 years as
chief financial officer in large, community-based healthcare organizations. Mr. Loudermilk is a graduate of Georgia
Southern College and earned an MBA from the University of Southwestern Louisiana in Lafayette, La. Mr.
Loudermilk also serves on the Phoebe Sumter Medical Center, Phoebe Dorminy Medical Center, PPG and PPHV
boards.
Tommy Chambless is senior vice president and general counsel for the System. Mr. Chambless has 40
years’ experience in the private practice of law, a decade of volunteer service on PPHS’ board and 16 years’ service
in the Georgia House of Representatives. Prior to joining the System, Mr. Chambless, age 69, retired as senior
partner at Watson, Spence, Lowe & Chambless, LLP, where Mr. Chambless was a trial attorney. A graduate of the
University of Georgia School of Law and Emory University, Mr. Chambless is a member of the Dougherty Circuit
Bar Association, the State Bar of Georgia, the American Bar Association, the American Health Lawyers Association
and a Fellow of the Lawyers Foundation of Georgia.
Bob LaGesse is senior vice president of physician practices at the System. Prior to joining the System, Mr.
LaGesse, age 58, was vice president for physician operations at HCA Healthcare’sHealthcare¹s Delta Division in
New Orleans, Louisiana, and spent 21 years in the Air Force Medical Service. Mr. LaGesse served at Brooks Air
Force Base, San Antonio, Texas, where he retired as assistant chief of patient administration for all Air Force Health
System Facilities. Mr. LaGesse received a bachelor’s degree in business administration from Wayland Baptist
University and a master’s degree in management from Troy University.
Dr. Rich Bowe is senior vice president of physician practices at the System and has been an
anesthesiologist with Albany Anesthesia Associates, PC for more than 20 years. Dr. Bowe, age 53, previously
served on PPMH’s board of directors. Dr. Bowe holds a bachelor’s degree in biology from the University of
Missouri Kansas City, where he also earned his medical degree. Dr. Bowe served his internship in internal medicine,
completed his anesthesia residency and served as chief resident at Dartmouth-Hitchcock Medical Center in New
Hampshire. Dr. Bowe is board certified by the American Board of Anesthesiology.
Tim Trottier is senior vice president of regional operations at the System. Mr. Trottier, age 47, holds a
bachelor’s degree of business administration from Seattle University and a master’s degree in business
administration from Oklahoma City University. Prior to joining the System, Mr. Trottier was the CEO for Easton
Hospital, Easton, Pennsylvania. Prior to this Mr. Trottier was a hospital CEO for Health Management Associates at
4 of their hospitals.
Tom Sullivan is senior vice president of strategy and development at the System. Mr. Sullivan, age 48,
has been with the System for 18 years, serving in various roles with his most recent being as executive director for
the Phoebe Foundation. Mr. Sullivan is a graduate of the University of Georgia and Georgia Southwestern
University. Mr. Sullivan earned a certificate in Competitive Marketing Strategy from The Wharton School
Executive Education Program.
Dave Baranski is a senior vice president and chief human resource officer at the System. A native of
Ohio, Mr. Baranski, age 65, has more than 25 years’ experience in human resources in both industry and healthcare.
Mr. Baranski holds a master’s degree from Troy University and a bachelor’s degree in human resource management
from Lourdes College and an associate’s degree in nursing science from The Michael C. Owens College of Nursing.
Mr. Baranski is president-elect of the Georgia Society of Health Care Human Resource Administration and serves as
a board member of the Southwest Georgia Area Health Education Center (AHEC), the Flint RiverQuarium, and a
member of the Lee County Schools Career Advisory Board.
A-7
Location of Facilities
SYSTEM FACILITIES AND OPERATIONS
For over 100 years, PPMH’s Board of Directors, administrators, physicians, healthcare professionals and
supporting staff have continued to carry out Judge Putney’s original mission of health care: to serve all patients. This
not-for-profit, 461-bed, tertiary care hospital provides Albany and Southwest Georgia with advanced medical
treatments and experts in virtually all specialties and subspecialties. The Hospital’s comprehensive healthcare
programs include oncology, cardiac and neonatal services.
In 2009, PPMH built its second medical tower, which now houses the region’s premier Cancer Center. The
Hospital’s Cancer Center holds several prestigious accreditations, including designations by the Commission on
Cancer, National Accreditation for Breast Centers and the American College of Radiology (breast center of
excellence) and the American College of Surgeons. It is one of the busiest centers in the Southeast, treating more
than 1,200 new cases each year.
The Hospital’s cardiac patients also receive the best available treatment through a continuum of care, from
prevention and emergency treatment to complex cardiac surgery and community-based outreach and support. In the
Hospital’s new Endovascular Suite, cardiovascular surgeons perform specialized cardiac care, including carotid
artery stenting. The Hospital is one of few hospitals in the state that offers electrophysiology.
Mothers and their babies also benefit from cutting-edge technologies, that when combined with the
Hospital’s experienced professionals, ensure the safest delivery of newborns. The Hospital is one of six statedesignated Regional Perinatal Centers and provides quality care for Southwest Georgia’s tiniest patients with its
Neonatal Intensive Care Unit (the “NICU”), where premature and critically ill newborns receive the advanced
medical care they need to thrive. The NICU is licensed for 27 beds.
In addition, the Hospital’s cutting-edge technologies include the da Vinci Robotics Surgical System, the
first in South Georgia, the first TomoTherapy unit in Georgia (a radiation machine that can treat malignant tumors
A-8
with more precision), Southwest Georgia’s first fixed PET/CT unit, digital mammography, and Albany’s first open,
high-field MRI machines.
On August 1, 2012, the Hospital leased an acute care 248-bed hospital from the Hospital Authority of
Albany-Dougherty County and operates this free-standing facility as a north campus of Phoebe Putney Memorial
Hospital. The facility was formerly owned by HCA, Inc. as Palmyra Medical Center. The facility was purchased by
the Authority December, 15, 2011. It continues to provide general acute care services, including surgery. The
acquisition will allow the Hospital to consolidate services, realize improved economies of scale and expand services
on the main campus, including critical care and trauma services. Inpatient physical rehabilitation services are
currently consolidated on the north campus.
The Hospital is nationally recognized for innovative community health programs and services. The honors
include the American Hospital Association’s prestigious Foster G. McGaw Prize, the American Hospital
Association Nova Award for teen pregnancy prevention programs, and numerous VHA awards. The Hospital was
the first VHA hospital to win three leadership awards for community health programs, clinical excellence and
supply chain management.
PPMH employs more than 3,900 employees including physicians, nurses and staff.
Phoebe Sumter Medical Center
On March 1, 2007, Sumter Regional Hospital was destroyed by a tornado and much of the medical
community was forced to leave. In October 2008, the System responded to a request from the Americus and Sumter
County Hospital Authority to be a partner in rebuilding the physician community and the Sumter hospital. Effective
July 1, 2009, the Americus and Sumter County Hospital Authority entered into a forty year lease and transfer
agreement with Phoebe Sumter Medical Center, Inc. (“PSMC”) for all the assets, management, and governance of
Sumter Regional Hospital. Sumter Regional Hospital was renamed Phoebe Sumter Medical Center. PSMC opened
its new state-of-the-art facility December 2011.
PSMC is currently a 76-bed facility, and its campus has three additional medical buildings housing
physician practices and clinics for oncology and surgery, women’s and family health, orthopedics and wellness.
Services currently available are: medical, surgical, pediatrics, obstetrics, labor & delivery, coronary care, outpatient
surgery, emergency services, hospice care, cardiopulmonary, radiology, physical therapy, oncology, hematology and
rheumatology services, and wound care.
Phoebe Sumter employs over 400 employees.
Phoebe Worth Medical Center
Phoebe Worth Medical Center (“PWMC”) was purchased by PPHS in 2001, resulting in significant growth
and expansion, increased services and aesthetic improvements at the Worth County hospital. PPHS’ purchase of the
former Georgia Baptist-owned hospital, which had suffered significant operating losses, increased the rural
hospital’s level of services and improved the quality of health care and access to care in this community. It also
raised the hospital’s financial standing and improved physician relations and customer service at the facility.
PWMC became a Critical Access Hospital in September, 2002. PWMC offers a complete line of medical
services including a 24-hour emergency center, medical-surgical care, pediatrics, wound care, women’s health,
swing bed services and more. PWMC combines the innovations of a progressive health care system with
personalized care in a hometown setting.
As a member of the System, PWMC has access to highly-trained physicians, dietary services, financial
management experts, administrators and human resources professionals - health care amenities that the hospital did
not previously have. PWMC now has physicians who also cover PPMH’s emergency center thus creating consistent
medical treatment between the facilities. PWMC employs more than 200 and is the largest employer in Worth
County.
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Southwest Georgia Regional Medical Center
The System entered into a management services agreement with the Hospital Authority of Randolph
County to manage the operations of the hospital and nursing home in February 1999. Southwest Georgia Regional
Medical Center in Cuthbert became the state’s first Critical Access Hospital in 1999.
Located in Cuthbert, Ga., Southwest Georgia Regional Medical Center offers medical services that respond
to community needs, including a 24-hour emergency center, senior care, surgical, swing bed, respiratory, radiology,
laboratory and rehabilitation services. The 25-bed critical access acute care and swing bed facility also has 80
nursing home beds.
Southwest Georgia Regional Medical Center (SGRMC) has approximately 250 employees.
Dorminy Medical Center
Dorminy Medical Center is a 75-bed, acute care facility located in Fitzgerald, Ga. (Ben Hill County).
Accredited by JCAHO and a member of GHA (Georgia Hospital Association) and GHRA (Georgia Rural Hospital
Association), Dorminy Medical Center was the 2001 Hometown Health Hospital of the Year.
The System entered into a management services agreement with the Hospital Authority of Ben Hill County
November, 2010. The rural hospital provides the following services: cancer, cardiology, obstetrical care,
rehabilitation, wound care, sleep study, hospice services and surgery, emergency care, medical imaging, pediatrics,
physical therapy, and speech therapy. Since managing Dorminy, PPHS has also added hospitalist care.
Phoebe Dorminy employs nearly 350 employees.
Rural Clinics
The System has a strong commitment to primary care for the Southwest Georgia region. A network of
family medical centers in six counties serves the entire family for those who reside outside of Albany. The System
has rural health clinics in Ashburn, Camilla, Cuthbert, Ellaville, Fitzgerald, Pelham and Sylvester, Ga., each
provides patients with same-day access for urgent problems, prenatal care, pediatric care, women’s health care, older
adult care, sports medicine, screening and preventive medicine, in-office laboratory services, and in-office x-ray
services.
Each Family Medical Center is staffed with at least one family medicine physician.
The System also operates off-site cancer clinics at PWMC, Dorminy Medical Center, PSMC and at
Colquitt Regional Medical Center in Moultrie, Georgia, a not-for-profit community hospital. These clinics offer
chemotherapy, and hematology and oncology services to local and regional patients. The clinic features eight
individual stations of chairs and chemotherapy pumps, three exam rooms and a pharmacy and averages 20 new
patients per month from all surrounding counties.
Other Facilities
For those who need urgent care treatment, the System has two ConvenientCare locations, for minor injuries
and ailments. These facilities treat patients at a lower cost on a walk-in basis only and visits number approximately
41,000 annually.
At two locations, The Tower Medical Group - Internal Medicine delivers high-quality, accessible
healthcare. The System’s Tower Medical Group provides primary and consultative medical care for adults,
including geriatric patients, with emphasis on diagnosis, preventive health and continuity of care in both outpatient
and inpatient settings.
PPHV owns Morningside Assisted Living, an assisted living facility that serves seniors with daily living
activities, nutritious dining plans, active and meaningful daily programming. In addition to assisted living,
Morningside also provides short-term (respite) care and Alzheimer’s care.
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The System also owns 18-licensed bed Willson Hospice House, where Albany Community Hospice
provides inpatient end-of-life care, symptom management, short-term care for patients who are actively dying, and
respite care for families.
Services Offered by the System
Ambulatory Infusion
Assisted Living
Audiology
Bariatric Surgery
Behavioral Health
Breast Health Services
Cardiac Rehabilitation
Cardiology
Cardiovascular
Chest Pain
Childbirth Education/Lactation
Convenient Care
Corporate Health
Corporate Onsite Services
Da Vinci Robotic Surgery
Diabetes Care
Digestive Diseases
Emergency Medicine
Gastroenterology and Endoscopy
Hematology/Oncology
Home Health
Hospice and Palliative Care
Hyperbaric and Wound Care
Inpatient Rehabilitation
Labor and Delivery
Laboratory Medicine
Neurodiagnostics
Oncology Services
Orthopedics
Outpatient Diagnostics
Pain Management
Pediatrics
Pediatric Radiology
Pediatric Therapy
Physical Medicine
Physical and Occupational Therapy
Prostate Brachytherapy
Radiation Oncology
Sickle Cell Treatment
Sleep Disorder
Social Services/Support Groups
Speech Therapy
Sports Medicine
Surgical Weight Loss and Wellness
Surgical Care
Women’s Health Services
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MEDICAL STAFF
PPHS does not have a single System-wide medical staff. Rather each hospital has a separately credentialed
medical staff, although there are a number of physicians who are on the medical staff of one or more of the System’s
hospitals.
An analysis of key characteristics of staff members at PPHS’s five hospitals is highlighted in the following
table:
System Medical Staff as of July 31, 2012
PPMH
Phoebe
Worth
Phoebe
Sumter
Phoebe
Dorminy
SW Regional
Medical Ctr.
Number of Active & Associate Staff
Physicians
Number of Affiliate Staff Physicians(1)
Number of Consulting Physicians
313
0
34
7
25
62
80
65
0
20
26
55
45
7
0
Percent of Board Certified Active &
Associate Staff Physicians
90%
6%
81%
63%
96%
50
55
50
52
54
18%
43%
19%
2%
24%
Average age (years) of Active and
Associate Staff Physicians
Percent of Active and Associate Staff
Physicians over Age 60
Net Additions/Deletions to Active &
Associate Staff from Aug ‘11 - Jul ‘12
50
2
12
4
11
_________________
(1)
Affiliate staff physicians are staff members who have to be on active staff at another facility but can admit and
treat patients without having the obligations of taking call and meeting attendance requirements that Active staff
have. This category includes teleradiologists.
EMPLOYED PHYSICIANS
Of the 465 active & associate staff physicians of the medical staff for the System hospitals, 169 are
employed through Phoebe Physician Group, the System’s wholly owned physician group. The remainder of the
medical staff consists of independent, private practitioners from the community. A total of three physicians serve on
the Hospital’s Board of Directors and four serve on the System Board of Directors.
Due to the increasing constraints of private practice, many physicians now show a preference for the
hospital employment model. PPG has experienced significant growth of the number of employed physicians over
the past four years. Much of this has come about by the acquisition of practices that are critically important to the
System’s delivery of care. Phoebe Physician Group was formed in 2009.
At this time, PPG employs physicians in primary care as well as many medical and surgical specialties and
sub specialties. Physicians currently employed by PPG are in the specialties of anesthesiology, cardiology,
cardiovascular surgery, emergency medicine, family medicine, gastroenterology, general surgery, hospice/palliative
care, hospital medicine, internal medicine, infectious disease, maternal/fetal medicine, neonatology, neurology,
neurological surgery, obstetrics/gynecology, occupational medicine, oncology, orthopedic surgery, physiatry,
psychiatry, radiology, rheumatology, sports medicine, surgical oncology, urology, vascular surgery and wound care.
A-12
EMPLOYEES
The System and its affiliated entities employ about 4,500 full- and part-time employees as of July 31, 2012.
There is no union representation of employees. No employee groups within the System are subject to collective
bargaining agreements.
MEMBERSHIPS AND ACCREDITATIONS
The Cancer Program at the Hospital was granted three-year approval with commendation in October 2011
by the Commission on Cancer of the American College of Surgeons.
The Hospital’s Carlton Breast Health Center was granted Mammography accreditation in February 2010,
Ultrasound accreditation in August 2011 and Stereotactic accreditation in June 2011. These 3 accreditations allow
us to have the distinction of “BICOE”, Breast Imaging Center of Excellence, which was achieved in August 2011.
The Hospital was granted NAPBC (National Accreditation Program for Breast Centers) accreditation in
December 2011 by the American College of Surgeons.
The Hospital was granted accreditation in June 2012 by the American Association of Blood Banks
(AABB)/College of American Pathologists (CAP).
The Southwest Georgia Family Medicine Residency Program at the Hospital received full accreditation
from the Accreditation Council for Graduate Medical Education, an arm of the American Medical Association in
November 2009. The full accreditation allowed for expansion of the program, increasing the number of new
residents from five to six, and ultimately increasing the number to eight new residents a year.
The Hospital’s Main Campus Clinical Laboratory was awarded an accreditation in July 2012 by the
Commission on Laboratory Accreditation of the College of American Pathologists (CAP).
All currently operating hospital facilities of the System are fully accredited by the Joint Commission,
licensed by the State of Georgia and certified for participation in the Medicare and Medicaid programs.
Accreditations, licenses and certifications are subject to renewal or review periodically.
KEY RELATIONSHIPS
The System and the Hospital maintain and develop beneficial partnerships that support the organizational
mission and improve patient access to quality care. These partnerships span educational, clinical and community
initiatives.
In 1993, the Hospital became the headquarters for the Southwest Georgia Family Medicine with the goal of
providing a stronger pipeline of primary care physicians to rural communities throughout Southwest Georgia. More
than 70 percent of graduates have since located in practices in the region. The organization has also developed an
educational alliance with the Medical College of Georgia, Georgia Health Sciences University for third- and fourthyear medical students, creating the first off-site clinical campus at the Hospital. There is also a key partnership with
University of Georgia’s School of Pharmacy that allows students to do clinical and education rotations at the
Hospital.
The System’s leadership in graduate medical education in Georgia has also fostered the South Georgia
Medical Education Consortium, which involves five other regional hospitals in supporting student education.
Important patient care relationships have created improved access for patients with cancer through clinics
in several rural communities, bringing care close to home. The alliance with the Medical College of Georgia
(“MCG”)/Georgia Health Sciences University also provide a pediatric specialty clinic in Albany, staffed by MCG
specialists in pediatric neurology, heart and surgery. These physicians see children in Albany and in regional
outlying areas who can now come to the Hospital for specific treatments or consultations.
A-13
The System and the Hospital also have a partnership with the Southwest Georgia Cancer Coalition, which
was formed in 2001 to eliminate disparities in access to care and to conduct research. The Hospital was a founding
partner and also supports a Georgia Distinguished Scholar who is a surgical oncologist.
CAPITAL EXPENDITURES
Over the past three fiscal years, the System has spent approximately $145.3 million on a variety of capital
projects including equipment, information technology, and renovation or expansion projects. Subject to annual
approval by the PPHS Board of Directors and continuing satisfactory financial performance, PPHS believe that it
will continue to spend at the historical annual rate in the future while continuing to focus on rebuilding its balance
sheet strength to previous levels. The following summary presents the purchase, development, construction and
reconstruction, renovation, rehabilitation and/or equipping (dollars in thousands) of the System for the fiscal years
ended July 31, 2010, 2011 and 2012.
CAPITAL EXPENDITURES
Fiscal Years Ended July 31,
2011
(Dollars in Thousands)
$ 38,060
2010
Capital Expenditures
_________________
Source: PPHS Management
$ 41,117
2012
$ 66,118
NEW PROJECTS
The proceeds of the Series 2012 Certificates (and other related revenue anticipation certificates, if any) will
be loaned to Phoebe Putney Memorial Hospital, Inc. (the “Hospital”) and applied to fund or reimburse all or a
portion of the costs of (i) renovations and improvements on or adjacent to the campus of the Hospital located at 417
Third Avenue, Albany, Georgia, including the acquisition of furniture, fixtures and equipment related thereto,
(ii) acquisition of an acute care facility, formerly known as Palmyra Medical Center and located at 2000 Palmyra
Road, Albany, Georgia, (iii) renovations and improvements at Phoebe Northwest in the 2000 block of Dawson
Road, Albany, Georgia, including the acquisition of furniture, fixtures and equipment related thereto,
(iv) construction, expansion, renovation and capital improvements to the Hospital’s facilities located in the 2000
block of Meredyth Drive, 2000 block of Ray Knight Way and Nancy Lopez Lane, Albany, Georgia, (v) construction
of a distribution center on Lots 4A & 4B on Honeysuckle Drive, Albany, Georgia, (vi) construction, renovations and
capital improvements of an early childhood education center located at 2530 Lafayette Drive, Albany, Georgia,
(vii) renovations and improvements at Phoebe East located at 2410 Sylvester Road, Albany, Georgia, including the
acquisition of furniture, fixtures and equipment related thereto and (viii) acquisition of various computer, medical
and other equipment for the Hospital (collectively, the “Projects”). See PLAN OF FINANCE and ESTIMATED
SOURCES AND USES OF FUNDS in the Official Statement. The capital projects described include the following:
•
•
•
•
A three-story, 85,500 square foot, Digestive Health Center that includes 30 exam rooms, 10 triage rooms,
three clinical trial rooms, 26 prep/recovery bays and eight procedure rooms with an estimated cost of $32
million.
Renovation of the cardiac nursing units at an estimated cost of $4.9 million.
Telemetry monitoring system and TracemasterVue system upgrade at an estimated cost of $1.8 million
Imaging Center expansion at 2709 Meredyth Drive, Albany, GA with an estimated cost of $8 million.
Future capital expenditures, not funded with the Series 2012 Certificates, will be financed by internally
generated funds and external financing sources including fundraising activities and proceeds from future bond issues
and bank loans.
A-14
SERVICE AREA DEMOGRAPHICS
The following table lists the demographic information for PPHS’ Service Area but excludes demographics
for fourteen counties from where the System receives tertiary referrals. PPHS’ Service Area is represented by the
Georgia counties of Baker, Ben Hill, Calhoun, Colquitt, Crisp, Dooly, Dougherty, Early, Irwin, Lee, Macon, Miller,
Mitchell, Randolph, Schley, Sumter, Telfair, Terrell, Tift, Turner, Wilcox and Worth.
SERVICE AREA DEMOGRAPHICS
2011
Population
451,811
9,774,937
310,704,322
2011-2016
Projected
Population
Growth
0.21%
0.94%
0.67%
Families
Below
Federal
Poverty
Line(1)
41.2%
26.7%
24.7%
Median
Household
Income
$31,247
$46,924
$50,227
Age 0-19
Age 65+
PPHS Service Area
28.3%
13.3%
Georgia
28.5%
10.8%
USA
26.8%
13.2%
_________________
(1)
According to the US Department of Health & Human Services, the poverty line for a family of 4 in the 48
contiguous States and the District of Columbia is defined as $23,050 in household income
Source: U.S. Census Bureau
The following table sets forth the ten largest employers in PPHS’ Service Area:
Employer
Number of Employees
Marine Corps Logistics Base - Albany
5,040
3,800
Equigroup
2,800
Dougherty County Board of Education
2,412
City of Albany
930
Procter & Gamble
900
Lee County Board of Education
800
Dougherty County
695
Shaw Industries
630
MillerCoors
600
Teleperformance
600
_________________
Source: Albany-Dougherty Economic Development Commission, Lee County Chamber of Commerce, Camilla
Chamber of Commerce
A-15
COMPETITION
The following table lists 2012 operated beds for the competitor hospitals. This information includes only acute care
facility beds.
HOSPITAL BEDS IN SERVICE AREA
System or Hospital
Total Beds
Est. Distance
from PPMH
1) Phoebe Putney Health System(1)
623
-(2)
2) Dorminy Medical Center
75
62
(2)
3) Southwest GA Regional Medical Center
25
45
Subtotal
723
4) Mitchell County Hospital
25
30
5) Calhoun Memorial Hospital
25
38
6) Crisp Regional Hospital
65
40
7) Colquitt Regional Medical Center
73
45
8) Tift Regional Medical Center
191
45
9) Miller County Hospital
25
51
10) Early Memorial Hospital
25
55
11) Archbold Medical Center
264
65
Total
1,416
_________________
(1)
Includes Phoebe Putney Memorial Hospital (Main & North Campuses), Phoebe Sumter Medical Center and
Phoebe Worth Medical Center. The number of operated beds does not include hospitals managed by PPHS. On
December 16, 2011, the Hospital Authority of Albany Dougherty County, Georgia purchased Palmyra Medical
Center from HCA. On August 1, 2012, the Hospital Authority of Albany Dougherty County, Georgia entered
into a forty-year lease agreement with Phoebe Putney Memorial Hospital, Inc. and Phoebe Putney Health
System, Inc. to lease and operate the acquired hospital under Phoebe Putney Memorial Hospital, Inc.’s license.
(2)
Dorminy Medical Center and Southwest GA Regional Medical Center are managed by Phoebe Putney Health
System.
A-16
Map of Competitors
The following table sets forth the inpatient discharges for PPHS’s Service Area for calendar years 2009,
2010 and 2011.
SERVICE AREA INPATIENT DISCHARGES
(Calendar Year)
2009
Inpatient
Discharges
PPHS
Palmyra Medical Center
Archbold Memorial Hospital
Tift Regional Medical Center
Mitchell County Hospital
Other
14,747
2,979
967
571
237
2,006
2010
Percent
of Total
68.6%
13.9%
4.5%
2.7%
1.1%
9.3%
Inpatient
Discharges
15,117
3,279
1,028
582
225
1,956
2011
Percent
of Total
68.1%
14.8%
4.6%
2.6%
1.0%
8.8%
Inpatient
Discharges
15,061
2,635
740
525
161
1,647
Percent
of Total
72.5%
12.7%
3.6%
2.5%
0.8%
7.9%
Total Inpatient Discharges
21,507
100.0%
22,187
100.0%
20,769
100.0%
_________________
Source: Georgia Hospital Association – Ga. Discharge Data System/Hermes. Information excludes newborns.
A-17
OPERATING AND FINANCIAL DATA
Utilization of System Facilities
The following table provides certain information concerning the combined utilization of the facilities of the
System for the fiscal years ended July 31, 2010, 2011 and 2012. The Utilization of System Facilities reflects the
hospitals owned and leased by Phoebe Putney Health System, Inc. These hospitals include Phoebe Putney
Memorial Hospital, Phoebe Sumter Medical Center and Phoebe Worth Medical Center. Excluded from the
Utilization of System Facilities are Phoebe Dorminy Medical Center and Southwest Georgia Regional Medical
Center which are managed hospitals and are not part of PPHS’ consolidated financial statements.
UTILIZATION OF SYSTEM FACILITIES
Statistic
Operated Beds in Service (at yearend)
Inpatient Admissions
Patient Days (Inpatient)
Average Length of Stay (days)
Average Daily Census
Percent Occupancy
Hospital Based Outpatient Visits
Outpatient Gross Patient Service Revenue to Total Gross Patient
Service Revenue
_________________
2010
2011
2012
520
20,414
107,090
5.25
293
56%
344,313
520
21,298
112,495
5.28
308
58%
363,583
526
24,534
116,465
4.75
319
60%
373,901
60%
61%
60%
Sources of Combined Gross Patient Service Revenues
PPHS derives its patient revenue from private insurance carriers and managed care programs, from the
State of Georgia and the federal government under the Medicaid Program, and from the federal government under
the Medicare Program. See the discussion in the Official Statement under BONDHOLDERS RISKS – Dependence
on Federal and State Funding for a description of certain matters related to the Medicare and Medicaid programs.
The following table sets forth the percentages of combined gross patient service revenues PPHS derived from each
type of payer for the fiscal years ended July 31, 2010, 2011 and 2012. The Sources of Combined Gross Patient
Service Revenues reflect the hospitals owned and leased by Phoebe Putney Health System, Inc. These hospitals
include Phoebe Putney Memorial Hospital, Phoebe Sumter Medical Center and Phoebe Worth Medical Center.
Excluded from the Sources of Combined Gross Patient Service Revenues are Phoebe Dorminy Medical Center and
Southwest Georgia Regional Medical Center which are managed hospitals and are not part of PPHS’ consolidated
financial statements.
SOURCES OF COMBINED GROSS PATIENT SERVICE REVENUES
Payer Type
Medicare
Medicaid
Blue Cross
Commercial
Managed Care
Other
Total
_________________
2010
2011
2012
43.5%
19.0%
10.8%
11.3%
4.2%
11.2%
43.6%
19.7%
11.2%
10.2%
3.4%
11.9%
43.8%
19.2%
10.6%
9.8%
5.2%
11.4%
100.0%
100.0%
100.0%
A-18
Summary of Combined Revenues and Expenses
The following summary presents selected financial information of PPHS for the fiscal years ended July 31,
2010, 2011 and 2012. The revenue and expense information for the fiscal years ended July 31, 2010, 2011 and 2012
was extracted from the audited financial statements of PPHS. The following summary does not include all
components of changes in net assets. The Schedule of Historical Revenues and Expenses reflect the hospitals
owned and leased by Phoebe Putney Health System, Inc. These hospitals include Phoebe Putney Memorial
Hospital, Phoebe Sumter Medical Center and Phoebe Worth Medical Center. Excluded from the Schedule of
Historical Revenues and Expenses are Phoebe Dorminy Medical Center and Southwest Georgia Regional Medical
SCHEDULE OF HISTORICAL REVENUES AND EXPENSES
Unrestricted revenues, gains and other support:
Net patient service revenue*
Other revenue
Total operating revenue
Expenses:
Salaries and wages
Employee health and welfare
Medical supplies and other
Purchased services
Depreciation and amortization
Interest
Provisions for bad debts
Total expenses
Operating Income
Nonoperating gains (losses):
Investment income (loss)
Excess revenues (expenses)
2010
2011
$ 601,474
20,020
$ 621,494
$ 630,637
22,183
$ 652,820
$ 665,874
25,998
$ 691,872
$ 202,431
67,897
151,830
41,357
31,420
4,666
76,034
$ 575,635
$ 45,859
$ 233,672
72,351
164,574
51,690
29,387
5,593
66,504
$ 623,771
$ 29,049
$ 268,111
65,823
176,965
53,258
32,714
5,680
72,070
$ 674,621
$ 17,251
30,695
$ 76,554
45,728
$ 74,777
(9,857)
7,394
2012
$
Operating Margin
7.4%
4.4%
2.5%
Operating Cash Flow Margin(1)
13.2%
9.8%
8.0%
_________________
(1)
Operating Cash Flow Margin = (operating income + interest + depreciation and amortization)/total operating
revenue
The Obligated Group accounted for 97% and 99% of the Consolidated Assets for fiscal years ended July
31, 2012 and 2011, respectively, accounted for 89% and 98% of the Consolidated Net Assets for fiscal year ended
July 31, 2012 and 2011, respectively, and accounted for 77% and 78% of the Consolidated Net Revenues for fiscal
years ended July 31, 2012 and 2011, respectively. The Obligated Group’s percentage of Consolidated Assets and
Consolidated Net Assets for the fiscal years ended July 31, 2012 and 2011, respectively, exclude intercompany
eliminations included in the consolidated financial statements included in APPENDIX B hereto.
Note – For a description of other changes in net assets for the fiscal years ended July 31, 2012 and 2011,
(net assets released from restrictions, change in interest in net assets of Sumter Regional Hospital Foundation, Inc.,
contributions from Americus-Sumter County Hospital Authority, transfer to Hospital Authority of AlbanyDougherty County, pension plan net actuarial gain, amortization of prior service cost and net gain, restricted
donations and net assets released from donor restrictions), refer to the consolidated statement of operations and
changes in net assets in the audited consolidated financial statements appended as APPENDIX B.
A-19
Historical Balance Sheets
The following summary presents selected financial information of PPHS as of July 31, 2010, 2011 and
2012. The information as of July 31, 2010, 2011 and 2012 was extracted from the audited financial statements of
PPHS. The Historical Balance Sheets reflect the hospitals owned and leased by Phoebe Putney Health System, Inc.
These hospitals include Phoebe Putney Memorial Hospital, Phoebe Sumter Medical Center and Phoebe Worth
Medical Center. Excluded from the Historical Balance Sheets are Phoebe Dorminy Medical Center and Southwest
Georgia Regional Medical Center which are managed hospitals and are not part of PPHS’ consolidated financial
statements.
HISTORICAL BALANCE SHEETS
July 31,
2010
2011
2012
Assets
Current assets:
Cash and cash equivalents
Assets limited as to use - current
Patient accounts receivable, net of allowances
Supplies
Estimated third party payor settlements
Other current assets
Total current assets
$
260,926
1,560
74,346
8,028
5,715
$
290,372
1,570
95,399
8,080
1,614
6,987
$
112,705
1,664
99,313
8,166
5,079
8,093
$ 350,575
$
404,022
$
235,020
Assets limited to use, net of current portion
Property and equipment, net
Other assets, net
278,212
314,521
25,757
295,047
323,475
30,762
$ 969,065
$ 1,053,306
$
1,190,452
$
5,184
26,858
41,067
5,243
$
5,262
24,227
51,601
-
$
4,715
100,000
20,378
48,275
-
Total current liabilities
Long-term debt, net of current portion
Accrued pension cost
Accrued self-insurance cost
Derivative financial instruments
$
78,352
218,971
83,977
33,280
7,199
$
81,090
213,702
83,066
42,940
4,607
$
173,368
209,065
138,899
48,831
14,035
Total liabilities
Net assets:
Unrestricted
Temporarily restricted
Permanently restricted
$ 421,779
$ 425,405
$
584,198
$ 541,801
4,429
1,056
$ 621,704
4,770
1,427
$ 599,639
5,034
1,581
Total net assets
$ 547,286
$ 627,901
$ 606,254
Total liabilities and net assets
$ 969,065
$ 1,053,306
$ 1,190,452
Liabilities and Net Assets
Current liabilities:
Current portion of long -term debt
Short-term debt
Accounts payable
Accrued expenses
Estimated third party payor settlements
A-20
306,800
387,905
260,727
Historical and Pro forma Debt Service Coverage
The following table sets forth, for the fiscal years ended July 31, 2010, 2011 and 2012, the revenue of the
System available to pay debt service. The table also indicates the extent to which such available revenues for debt
service would provide coverage for pro forma maximum annual debt service on the Series 2012 Certificates and all
other outstanding long-term indebtedness of the System. The Historical and Pro forma Debt Service Coverage
reflect the hospitals owned and leased by Phoebe Putney Health System, Inc. These hospitals include Phoebe
Putney Memorial Hospital, Phoebe Sumter Medical Center and Phoebe Worth Medical Center. Excluded from the
Historical and Pro forma Debt Service Coverage are Phoebe Dorminy Medical Center and Southwest Georgia
Regional Medical Center which are managed hospitals and are not part of PPHS’ consolidated financial statements.
HISTORICAL AND PRO FORMA DEBT SERVICE COVERAGE
2010
Revenue and gains in excess of expenses and losses from
continuing operations
Interest expense(1)
Excluding
Net unrealized (gains) losses on investments
Available revenues for debt service
Actual annual debt service requirements on the outstanding
long-term indebtedness (2)
Historical coverage of the actual debt service on the outstanding
long-term indebtedness
Maximum pro forma annual debt service requirements on the
Series 2012 Bonds and outstanding long-term indebtedness(3)
Historical pro forma coverage of maximum pro forma annual
debt service requirements on the Series 2012 Bonds and
outstanding long-term indebtedness(4)
_______________
(1
Excludes interest paid on short-term debt
2011
2012
$ 76,554
31,420
4,666
$ 74,777
29,387
5,593
$
7,394
32,714
5,312
(27,842)
$ 84,798
(25,362)
$ 84,395
8,762
$ 54,182
$ 10,507
$ 10,861
$ 10,865
8.1x
7.8x
5.0x
$ 16,938
$ 16,938
$ 16,938
5.0x
5.0x
3.2x
(2)
Total interest expense plus payments on long-term debt.
(3)
As required by the Master Indenture for purposes of the above calculations, debt service on the Series 2008
Certificates and the Series 2010A certificates was assumed to be amortized on a level annual debt service basis
through maturity with an assumed average interest rate of 1.09% per annum with respect to the Series 2008
Certificates and 0.93% per annum with respect to the Series 2010A Certificates.
(4)
PPHS has entered into fixed payor swap agreements described in Note 12 “Derivative Financial Instruments” in
the audited financial statements included as Appendix B to this Official Statement. If the fixed payor swaps were
included in the maximum annual debt service calculation, historical pro forma coverage of maximum pro forma
annual debt service requirements on the Series 2012 Bonds and outstanding long-term indebtedness is 4.8x, 4.8x
and 3.1x for 2010, 2011 and 2012, respectively. The aforementioned calculation excludes the effect of the
constant maturity swaps.
Historical Liquidity – Days-Cash-on-Hand
The following table sets forth, for fiscal years ended July 31, 2010, 2011 and 2012, PPHS’ calculation of
Days-Cash-on-Hand. The information for fiscal years ended July 31, 2011 and 2012 was extracted from the audited
consolidated financial statements of PPHS. The Historical Liquidity – Days-Cash-on-Hand reflects the hospitals
owned and leased by Phoebe Putney Health System, Inc. These hospitals include Phoebe Putney Memorial
Hospital, Phoebe Sumter Medical Center and Phoebe Worth Medical Center. Excluded from the Historical
A-21
Liquidity – Days-Cash-on-Hand are Phoebe Dorminy Medical Center and Southwest Georgia Regional Medical
HISTORICAL LIQUIDITY – DAYS-CASH-ON-HAND
2010
Short term investments
$ 290,372
-
$ 112,705
-
248,729
263,387
257,557
509,655
553,759
370,262
575,635
(31,420)
623,771
(29,387)
674,621
(32,714)
$ 544,215
$ 594,384
$ 641,907
$
$
$
Total available cash
Total operating expenses
Plus-income taxes
Less-depreciation and amortization
Average daily operating expense
2012
$ 260,926
-
Assets limited as to use-internally designated for capital
acquisition
Adjusted total operating expenses
2011
1,491
(1)
Days-Cash-on-Hand
341.8
________________
(1)
Total available cash divided by Average daily operating expense.
1,628
340.1
1,759
210.5
Historical Capitalization – Debt to Capitalization Ratio
The following table sets forth, for fiscal years ended July 31, 2010, 2011 and 2012, PPHS’ calculation of its
debt to capitalization ratio. The information for fiscal years ended July 31, 2011 and 2012 was extracted from the
audited consolidated financial statements of PPHS. The Historical Capitalization – Debt to Capitalization Ratio
reflects the hospitals owned and leased by Phoebe Putney Health System, Inc. These hospitals include Phoebe
Putney Memorial Hospital, Phoebe Sumter Medical Center and Phoebe Worth Medical Center. Excluded from the
Historical Capitalization – Debt to Capitalization Ratio are Phoebe Dorminy Medical Center and Southwest Georgia
Regional Medical Center which are managed hospitals and are not part of PPHS’ consolidated financial statements.
HISTORICAL CAPITALIZATION - DEBT TO CAPITALIZATION RATIO
2010
Debt:
Current portion of long-term debt
Short term debt
Total debt
Unrestricted net assets
2011
2012
$
5,184
218,971
$ 224,155
$
5,262
213,702
$ 218,964
4,715
100,000
209,065
$ 313,780
$ 541,801
$ 621,704
$ 599,639
26.0%
34.4%
(1)
Debt to capitalization ratio
29.3%
________________
(1)
Total Debt divided by Total Debt plus Unrestricted net assets.
A-22
$
Management’s Discussion of Recent Financial Performance
Financial Overview. The purpose of this discussion is to provide an understanding of PPHS’ results of
operations for the years ended July 31, 2011 and 2012. The Financial Overview represents the hospitals owned and
leased by Phoebe Putney Health System, Inc. These hospitals include Phoebe Putney Memorial Hospital, Phoebe
Sumter Medical Center and Phoebe Worth Medical Center. Excluded from the Financial Overview are Phoebe
Dorminy Medical Center and Southwest Georgia Regional Medical Center which are managed hospitals and are not
part of PPHS’ consolidated financial statements.
Fiscal Year 2012.During fiscal year 2012, Inpatient Days were 116,465 which represents an increase of
3,970 days or 3.5% from fiscal year 2011 while inpatient admissions grew to 24,534 or 15% from FY2011. Hospital
based outpatient visits for the year ended July 31, 2012 were 373,901 which represents an increase of 10,318 visits
or 2.8% from fiscal year 2011. The Average Length of Stay decreased to 4.75 days, a 10% decrease from Fy2011
reflecting an objective of improving patient throughput and efficiency for the Hospital. See “UTILIZATION OF
SYSTEM FACILITIES” herein.
Total operating revenue for the year ended July 31, 2012 was $691.9 million which represents an increase
of $39.1 million or 6.0% from fiscal year 2011. The increase is primarily due to volume increase in inpatient and
outpatient utilization of 3.5% and 2.8%, respectively.
Total operating expenses for the year ended July 31, 2012 were $674.6 million which represents an
increase of $50.9 million or 8.2% from fiscal year 2011. Total operating expenses, excluding depreciation and
amortization and interest expense, increased $54.3 million or 8.2% from fiscal year 2011 to fiscal year 2012.
Salaries and wages increase $34.4 million or 14.7% from fiscal year 2011 to fiscal year 2012, because of wage
increases and the addition of approximately 180 full-time equivalent employees (“FTE’s”) of which 102 FTEs were
related to the acquisition of new physician practices through PPG. Employee health and welfare expenses decreased
$6.5 million or (9.0%) from fiscal year 2011 to fiscal year 2012. Medical supplies and other expenses for the year
ended July 31, 2012 were $177.0 million which represents an increase of $12.9 million or 7.5% due to increased
utilization and inflation. Purchased services for the year ended July 31, 2012 were $53.3 million which represents
an increase of $1.6 million or 3.0%. The increase is related to legal fees incurred due to the acquisition of Palmyra
Medical Center from HCA, Inc. and the engagement of outside consultants to assist the organization with expense
reduction opportunities. Depreciation and amortization expense for the year ended July 31, 2012 was $32.7 million,
an increase of $3.3 million or 11.3% due to the depreciation on the new hospital for Phoebe Sumter Medical Center.
Interest expense for the year ended July 31, 2012 was $5.7 million which represents an increase of $0.1 million or
1.6% due the System incurring short term debt for the acquisition of Palmyra Medical Center from HCA, Inc.
Provisions for bad debts for the year ended July 31, 2012 were $72.1 million, an increase of $5.6 million or 8.4%
due to the increase in patient revenues and increased write-offs of patients’ deductibles.
As a result of the activities described above, operating income for the year ended July 31, 2012 was $17.3
million. The System reported a 2.5% operating margin.
Total investment income for the year ended July 31, 2012 was ($9.9) million, which represents a decrease
of $55.6 million or (121.6)% from fiscal year 2011. Investment income losses consisted primarily of net realized
and unrealized gains(losses) on investments on PPHS’ long-term investment portfolio. Net realized and unrealized
investment losses for the year ended July 31, 2012 were $3.2 million which represents a decrease of $46 million or
(107.5)% from fiscal year 2011. These funds are invested according to PPHS’ investment policy which has an asset
allocation of 20% fixed income funds and 80% equity funds.
Total excess revenues of expenses for the year ended July 31, 2012 was $7.4 million. Total excess
revenues of expenses represent a 1.1% excess margin.
Fiscal Year 2011.During fiscal year 2011, Inpatient Days were 112,495 which represents an increase of
5,405 days or 5.0% from fiscal year 2010 while inpatient admissions grew to 21,298 or 4.3% during the same
period. Hospital based outpatient visits for the year ended July 31, 2011 were 363,583 which represents an increase
of 19,270 visits or 5.6% from fiscal year 2010. See “UTILIZATION OF SYSTEM FACILITIES” herein.
A-23
Total operating revenue for the year ended July 31, 2011 was $652.8 million which represents an increase
of $31.3 million or 5.0% from fiscal year 2010. The increase is primarily due to volume increase in inpatient and
outpatient utilization of 5.0% and 5.6%, respectively.
Total operating expenses for the year ended July 31, 2011 were $623.8 million which represents an
increase of $48.1 million or 8.4% from fiscal year 2010. Total operating expenses, excluding depreciation and
amortization and interest expense, increased $47.0 million or 7.7% from fiscal year 2010 to fiscal year 2011.
Salaries and wages increased $31.2 million or 15.4% from fiscal year 2010 to fiscal year 2011, because of wage
increases and the addition of approximately 206 full-time equivalent employees (“FTE’s”) of which 76 FTEs were
related to the acquisition of physician practices through PPG. Employee health and welfare expenses increased $4.4
million or 6.6% from fiscal year 2010 to fiscal year 2011. Medical supplies and other expenses for the year ended
July 31, 2011 were $164.6million which represents an increase of $12.7 million or 8.4% due to increased utilization
and inflation. Purchased services for the year ended July 31, 2011 were $51.7million which represents an increase
of $10.3 million or 25.0%. The increase is due to increase professional fees related to emergency room physicians,
outsourcing our recruiting department and legal fees incurred related to the acquisition of Palmyra Medical Center
from HCA, Inc. Depreciation and amortization expense for the year ended July 31, 2011 was $29.4 million, a
decrease of $2.0 million or (6.5)% due to no longer amortizing goodwill and intangible assets based on FASB 142 –
Goodwill and Other Intangible Assets. Goodwill and other intangible assets are tested for impairment annually and
more frequent in the event of an impairment indicator. Interest expense for the year ended July 31, 2011 was
$5.6million which represents an increase of $1.0 million or 19.9% due the additional interest from the Series 2010A
bonds in the amount of $99,000,000. Provisions for bad debts for the year ended July 31, 2011 were $66.5 million,
a decrease of $9.5 million or (12.5)% due to a higher percentage of patients qualifying for indigent and charity care.
As a result of the activities described above, operating income for the year ended July 31, 2011 was $29.0
million, which represents a decrease of $16.8 million or (36.7)% from fiscal year 2010. The System reported a 4.4%
operating margin.
Total investment income for the year ended July 31, 2011 was $45.7 million, which represents an increase
of $15.0 million or 49.0% from fiscal year 2010. Investment income gains consisted primarily of net realized and
unrealized gains on investments on PPHS’ long-term investment portfolio. Net realized and unrealized investment
gains for the year ended July 31, 2011 were $42.8 million which represents an increase of $12.1 million or 39.5%
from fiscal year 2010.
Total excess revenues of expenses for the year ended July 31, 2011. Total excess revenues of expenses
represents a 11.5% excess margin.
Retirement Plans
PPHS sponsors a defined benefit pension plan and defined contribution plan. The defined benefit plan was
closed to new entrants as of December 31, 2006 and all new employees since that time are covered under the
discretionary contribution plan.
The defined benefit plan covers substantially all System employees employed prior to January 2007 who
meet age and service requirements. Retirement costs and obligations are dependent on assumptions used in
calculating such amounts. These assumptions include discount rates, expected return on plan assets, rates of
compensation increases and other factors. In accordance with accounting principles generally accepted in the
United States of America, actual results that differ from the assumptions are accumulated and amortized over future
periods and therefore generally affect expenses and recorded obligations in future periods. While management
believe that the assumptions used are appropriate and the liabilities fairly stated, differences in actual experience or
changes in assumptions may impact future obligations and expenses.
For Fiscal Year 2012, the System utilized the following assumptions to determine benefit obligations and
net periodic benefit cost:
A-24
Discount Rate – benefit obligation
Discount Rate – net periodic benefit cost
Rate of Compensation Increase
Expected Rate of Return on Plan Assets
4.57%
5.41%
4.00%
8.75%
The System provides investment oversight for the defined benefit plan. For Fiscal Year 2012, the asset
allocation was as follows:
Cash and Cash Equivalents
U.S. Equity Securities
Fixed Income
Real Assets
Opportunistic
Hedge Funds
Non U.S. Equity Securities
Emerging Markets
6%
22%
23%
4%
5%
20%
15%
5%
As of July 31, 2012, the funded status of the defined benefit plan was 52% of the projected benefit
obligation. At the end of Fiscal Year 2012, the projected benefit obligation was approximately $289,275,000. As of
July 31, 2012, the unfunded status of the defined benefit plan was 48% of the projected benefit obligation. At the
end of Fiscal Year 2012, the unfunded projected benefit obligation was approximately $138,899,000. For more
information on the defined benefit plan see the consolidated financial statements and supplemental schedules as of
and for the years ended July 31, 2012 and 2011 of the Health System, included in APPENDIX B to this Official
Statement, in Note (14) under “Notes to Consolidated Financial Statements” therein.
The discretionary contribution plan covers substantially all eligible employees. The System can make
discretionary contributions to the plan for those employees hired after December 31, 2006 who meet the eligibility
requirements. During Fiscal Year 2012, the discretionary contribution to this plan was approximately $3,343,000.
The System maintains a 403(b) voluntary retirement program for employees. Employees may deposit a
portion of their earnings for each pay period on a pre-tax basis and the System matches 50% of each participant’s
voluntary contribution up to a maximum of 4% of the employee’s annual salary.
The System maintains an unfunded Supplemental Executive Retirement plan (“SERP”), which provides
retirement benefits to certain officers and select employees. The plan is non-qualified and does not have a minimum
funding requirement. The liability for this SERP obligation is included in accrued expenses included in the audited
financial statements as of and for the years ended July 31, 2012 and 2011 of the Health System, included in
APPENDIX B to this Official Statement, in the “Consolidated Balance Sheets” therein.
Investment Policy
PPHS manages substantially all of its cash, short-term and long-term investments in accordance with an
Investment Policy approved by the PPHS Board of Directors. PPHS retains various professional investment
managers and advisors to oversee its investments in different classes of securities according to asset allocation
targets that are set in conjunction with the Investment Policy and PPHS’ overall strategic and financial plan.
The following table sets forth the long term capital plan investments at market value by asset class and the
percentage which each asset class represents of the total as of July 31, 2011 and 2012, respectively:
A-25
INVESTMENTS
2011
Cash
U.S. Equities
Non U.S. Equities
Emerging Markets
Hedge Funds
Real Assets
Opportunistic Funds
U.S. Fixed Income
Total Fund
Portfolio
Total
$27,567
73,013
45,288
14,190
59,119
20,188
12,885
44,367
$296,617
Portfolio
Allocation
9%
25%
15%
5%
20%
7%
4%
15%
100%
2012
Investment
Policy
Target
0%
20%
16%
6%
20%
13%
5%
20%
100%
Portfolio
Total
$10,751
63,115
45,268
15,625
67,115
21,440
10,956
74,194
$308,464
Portfolio
Allocation
3%
20%
15%
5%
22%
7%
4%
24%
100%
Investment
Policy
Target
0%
20%
16%
6%
20%
13%
5%
20%
100%
Insurance
In Georgia, a corporate entity like PPHS can obtain insurance coverage through commercial insurance, an
approved self-insurance program or a captive insurance company. PPHS currently provides its coverage, as well as
the coverage of PPG’s employed physicians, through a South Carolina captive insurance company, Phoebe Putney
Indemnity, LLC. (“PPI”).Effective August 1, 2006, PPI issued a claims-made policy covering professional and
general liabilities, personal injury, advertising injury liability, and contractual liability of the System. PPI coverage
has continued, and under the current policy, the limit of liability is $5,000,000 per occurrence, with an annual
aggregate of $23,000,000. PPHS purchases excess coverage beyond the limits of the captive up to $50,000,000.
Litigation
Pending litigation against the System, the Hospital and the Authority include the following:
Federal Trade Commission, Petitioner vs. Phoebe Putney Health System, Inc., Phoebe Putney Memorial
Hospital, Inc., Phoebe North, Inc., HCA, Inc., Palmyra Medical Center, Inc., Hospital Authority of AlbanyDougherty County. Case No 11-1160, in the Supreme Court of the United States.
In December, 2010, PPHS presented the Issuer with a plan to acquire the assets of Palmyra Medical Center,
an HCA affiliated entity in Dougherty County, Georgia, with funds to be provided by PPHS and to lease such assets
to a nonprofit PPHS subsidiary. The terms of the lease would be essentially the same as the lease arrangement with
the Issuer by which PPMH operates Phoebe Putney Memorial Hospital. The Issuer approved the purchase of the
assets of the Palmyra Medical Center facility and approved its temporary management by a subsidiary of PPHS.
Plans proceeded toward the closure of the acquisition until the Federal Trade Commission (“FTC”) expressed an
interest in the case and asked for certain information to be produced and asked for a delay in proceeding with the
transaction. The Issuer, PPMH and PPHS cooperated with the FTC and agreed to several delays in closing date
upon request of the FTC. When the Issuer set April 21, 2011 as the new closing date for the acquisition, the FTC ,
on April 19, 2011, initiated an administrative proceeding to determine whether the Issuer’s purchase and subsequent
lease would substantially lessen competition or tend to create a monopoly in the market in violation of certain
alleged provisions of the Anti-Trust laws. Pursuant to that action, the FTC brought an action on April 20, 2011, to
obtain a preliminary injunction against the Issuer, PPMH, PPHS and HCA, Inc. While a temporary restraining order
was entered to allow the District Court to look into the matter, respondents moved the District Court to dismiss the
FTC’s complaint, asserting that the “State-Action Doctrine” immunized respondents from any anti-trust liability and
enforcement by the FTC in that the Issuer is the actor in the transaction and is a creature of the State of Georgia.
The District Court agreed and dismissed the FTC’s complaint with prejudice. The FTC appealed the Order of
Dismissal to the United States Court of Appeals for the Eleventh Circuit which took the case on an expedited basis,
and heard argument in October, 2011. On December 9, 2011, the Eleventh Circuit entered judgment affirming the
ruling of the District Court and the dismissal of the FTC action and, citing United States Supreme Court precedent
as well as Eleventh Circuit Court of Appeals precedent, affirmed that the State Action Immunity Doctrine applied
A-26
and that the FTC was not entitled to proceed with its enforcement action. On December 15, 2011, the acquisition
was concluded and the Issuer purchased the assets of the Palmyra Medical Center facility. Thereupon, on December
16, 2011, PPMH operated the former Palmyra Medical Center facility under a Management Services Agreement as
Phoebe North and continued to do so until August 1, 2012, at which time an amended lease was entered into
between PPMH and the Issuer, for the operation of the main campus as well as the Phoebe North campus, all as one
hospital called Phoebe Putney Memorial Hospital. Meanwhile, in March, 2012, the FTC filed a Petition for
Certiorari with the United States Supreme Court asking the Court to accept the case and to review the applicable law
as imposed by the District Court and the Eleventh Circuit Court of Appeals. In June, 2012, the Supreme Court
granted a Writ of Certiorari and agreed to review the case in its Fall, 2012 Term. Oral arguments were heard on
November 26, 2012 with a decision likely as early as spring, 2013. PPHS’s board as well as PPMH’s board, together
with the Authority’s board, all believe substantial legal precedent supports the decisions made to move forward with
the acquisition and lease, and that both the clear articulations of the law by the Eleventh Circuit Court of Appeals
and by the United States Supreme Court strongly support the dismissal of the FTC’s complaint and the transaction
as it has proceeded. An affirmance of the Eleventh Circuit opinion is expected.
There is no litigation pending or threatened against PPHS that management believes would adversely affect
PPHS’ ability to meet its obligations in the event of an adverse result.
A-27
APPENDIX B
FINANCIAL STATEMENTS OF PHOEBE PUTNEY HEALTH SYSTEMS, INC.
The consolidated financial statements of Phoebe Putney Health System, Inc. as of July 31, 2012 and 2011, and
for the years then ended, included in this Official Statement as this Appendix B, have been audited by Draffin & Tucker,
LLP, independent auditors, as stated in their report appearing in this Appendix B.
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended July 31, 2012 and 2011
CONTENTS
Pages
Independent Auditor's Report
1
Consolidated Financial Statements:
Balance Sheets
2-3
Statements of Operations and Changes in Net Assets
4-5
Statements of Cash Flows
6-7
Notes to Consolidated Financial Statements
8-52
Independent Auditor's Report on Consolidating Information
53
Consolidating Balance Sheet
54-57
Consolidating Statement of Excess Revenues (Expenses)
58-59
Independent Auditor's Report on Supplemental Information
60
Service to the Community
61-74
Member:
THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Albany, Georgia
We have audited the consolidated balance sheets of Phoebe Putney Health System, Inc. and
subsidiaries as of July 31 , 2012 and 2011, and the related consolidated statements of operations and
changes in net assets and cash flows for the years then ended. These consolidated fmancial
statements are the responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated fmancial statements based on our audits .
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated fmancial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated fmancial statements referred to above present fairly, in all material
respects, the financial position of Phoebe Putney Health System, Inc. and subsidiaries as of July 31,
2012 and 2011, and the results of their operations and changes in net assets and cash flows for the
years then ended, in conformity with accounting principles generally accepted in the United States of
America.
QMfiti- oj- \
.p
O.CI<.t.A, U.
Albany, Georgia
November 9, 2012
1
P.O. Box 6
Five Concourse Parkway
2617 Gillionville Road
Suite 1250
Albany, Ga 31702-0006
Atlanta, GA 30328
Tel. (229) 883-7878
Tel. (404) 220 -8494
Fax (229) 435-3152
Fax (229) 435-3152
CONSOLIDATED BALANCE SHEETS, July 31, 2012 and 2011
2012
ASSETS
Current assets:
Patient accounts receivable, net of allowance for
doubtful accounts of $128,000,000 in 2012 and
$140,000,000 in 2011
Supplies, at lower of cost (fust-in, first-out) or market
Estimated third-party payor settlements
$
112,704,889
1,664,022
2011
$
290,371,684
1,570,155
99,313 ,137
8,166,511
5 ,079,146
8 ,092,701
95,399,500
8,079,810
1,614,390
6,987,287
235 ,020,406
404 '022' 826
257,556,953
39,055,865
1,664,022
8,605,728
1,581,098
263,387 ,231
21,929,046
1,570,155
8,304,066
1,426,529
308,463,666
296,617,027
1,664,022
1,570,155
306,799,644
295,046,872
387,905 ,387
323,474,939
Other assets:
Deferred financing cost
Goodwill
Other receivables
Other assets
3,029,453
17,012,675
217,893,063
22,791,627
3,648,223
16,482,077
10,631,344
Total other assets
260,726,818
30,761,644
$ 1.190.452.255
$ 1.053.306,281
Assets limited as to use:
Internally designated for capital improvements
Internally designated for self-insurance
Under bond indenture agreement
Restricted by Phoebe Foundation, Inc.
Total assets limited as to use
Less amount required to meet current obligations
Assets limited as to use - long-term
Total assets
2
CONSOLIDATED BALANCE SHEETS, July 31, 2012 and 2011
2012
2011
LIABILITIES AND NET ASSETS
Short-term debt
Accounts payable
Accrued expenses
$
4,715,000
100,000,000
20,378,420
48,275,061
$
5,262,089
24,226,727
51,602,038
173,368,481
81,090,854
209,064,518
138,899,342
48,830,640
14,035,472
213,701,938
83,065,990
42,940,283
4,606,557
584,198,453
425!405,622
599,639,057
5,033,647
1,58C098
621,704,403
4,769,727
1,426,529
606,253,802
627 ,900!659
$ l, 190,452.255
$ 1.053.306.281
Total liabilities
Net assets:
Unrestricted
Total net assets
The accompanying notes are an integral part of these financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS AND
CHANGES IN NET ASSETS
for the years ended July 31 , 2012 and 2011
2012
2011
Net patient service revenue
Other revenue
$ 665,873,599
25,998,190
$ 630,637,309
22,183 ,310
Total revenues, gains and other support
691,871,789
652,820,619
268,110,938
65,823,168
176,964,380
53,258,051
32,714,196
5,680,033
72,070,178
233 ,672,275
72,350,930
164,574,236
51,689,665
29,386,828
5,593 ,086
66,504,333
674,620,944
623,771,353
17,250,845
29,049,266
Expenses:
Salaries and wages
Purchased services
Interest
Provision for bad debts
Total expenses
Operating income
(
Excess revenues
Net assets released from restrictions
Change in interest in net assets of Sumter Regional Hospital
Foundation, Inc.
Contributions from Americus-Sumter County Hospital
Authority
Transfer to Hospital Authority of Albany-Dougherty County
Continued
4
9,857,213)
45,727,852
7,393 ,632
74,777,118
42,782
125,450
130,584
(
45,275)
(
941,358)
31,026,634
CONSOLIDATED STATEMENTS OF OPERATIONS AND
CHANGES IN NET ASSETS, Continued
2012
$( 62,349,691)
181,422
3,276,175
( 1,766,884)
Net actuarial gain (loss)
Amortization of prior service cost
Amortization of net gain
Other changes in unrestricted net assets
Increase (decrease) in unrestricted net assets
Temporarily restricted net assets:
Restricted donations
Net assets released from restrictions
Permanent!y restricted net assets:
Restricted donations
Increase (decrease) in net assets
Net assets, beginning of year
Net assets, end of year
$
( 22,065,346)
79,903,300
466,429
125,450)
263,920
340,979
154,569
370,134
( 21,646,857)
80,614,413
627,900,659
547,286,246
$ 606,253,802
$ 627,900,659
The accompanying notes are an integral part of these financial statements.
5
2,677,828
181,422
3,128,115
306,702
42,782)
(
Increase in temporarily restricted net assets
2011
CONSOLIDATED STATEMENTS OF CASH FLOWS
2012
Cash flows from operating activities:
Change in net assets
Adjustments to reconcile change in net assets
to net cash provided by operating activities:
Changes in unrealized gain on investments
Change in interest in net assets of Sumter
Regional Hospital Foundation, Inc.
Contributions from Americus-Sumter County
Hospital Authority
Changes in:
Receivables
Supplies
Other receivables
Other assets
Accounts payable and accrued expenses
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Purchase of medical practices
Payments to Authority
Sale of assets limited as to use
Purchase of assets limited as to use
Net cash used by investing activities
Continued
6
$( 21 ,646,857)
10,204,555
32,714,196
(
130,584)
2011
$ 80,614,413
(25,016,028)
29,386,828
45,275
( 31 ,026,634)
( 3,913,637)
(
86,701)
( 3,464,756)
2,411,386
( 12,516,343)
( 7,175,284)
55,833,352
5,890,357
9,428,915
(21,053,188)
51 ,981)
(
( 6,518, 107)
( 1,327,902)
7,564,881
( 911,425)
9,660,763
( 2,592,913)
36,521,965
69,800,616
( 66, 118,010)
(
530,598)
(220,304,449)
86,296,769
(108,347 ,963)
(38,060,439)
( 5,197 ,535)
(309,004,251)
(35,086,936)
79,854,071
(71 ,683,033)
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
2012
Cash flows from financing activities:
Payments on long-term debt
Proceeds from issuance of short-term debt
5,184,509)
100,000,000
$(
2011
$(
5,268,339)
Net cash provided (used) by financing activities
94,815,491
( 5,268,339)
Increase (decrease) in cash and cash equivalents
(177 ,666,795)
29,445 ,341
290,371,684
260,926,343
Cash and cash equivalents , end of year
$ 112,704,889
$ 290.371.684
Supplemental disclosures of cash flow information:
Cash paid during the year for interest
$
$
Cash and cash equivalents, beginning of year
5,800,000
5.700.000
•
Effective June 30, 2009, the Americus-Sumter County Hospital Authority entered into a lease
and transfer agreement with Phoebe Sumter Medical Center, Inc. to transfer the assets,
liabilities, and operations of Sumter Regional Hospital to Phoebe Sumter Medical Center, Inc.
During 2012, the Americus-Sumter County Hospital Authority, under the lease and transfer
agreement, transferred the new facilities to Phoebe Sumter Medical Center, Inc. at an amount of
$56,027,000.
•
In 2012 and 2011, the Corporation acquired long-term assets, primarily consisting of goodwill of
approximately $531,000 and $5 , 198,000, respectively, as a result of the transactions to acquire
medical practices.
The accompanying notes are an integral part of these financial statements .
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Organization
Phoebe Putney Health System, Inc. (Corporation) is the not-for-profit parent company of
Phoebe Putney Memorial Hospital, Inc., a not-for-profit entity, Phoebe Putney Health
Ventures, Inc., a for-profit corporation, Phoebe Physician Group, Inc. , a not-for-profit
corporation, Phoebe Worth Medical Center, Inc., a not-for-profit entity, Phoebe Sumter
Medical Center, Inc. , a not-for-profit entity , Phoebe Putney Indemnity, LLC, a not-for-profit
entity and Phoebe Foundation, Inc., a not-for-profit entity. The above entities are
consolidated and all intercompany transactions are eliminated.
Phoebe Putney Memorial Hospital, Inc. (Hospital), located in Albany, Georgia, is an acute
care hospital, which operates satellite clinics in the surrounding counties. It provides
inpatient, outpatient and emergency care services for residents of Southwest Georgia.
Admitting physicians are primarily practitioners in the local area.
Phoebe Putney Health Ventures, Inc. engages in healthcare and related activities in
furtherance of the exempt purposes of Phoebe Putney Health System, Inc. and Phoebe Putney
Memorial Hospital, Inc.
Phoebe Physician Group, Inc. was established to organize and operate medical practices
exclusively for the benefit of Phoebe Putney Memorial Hospital, Inc., Phoebe Worth Medical
Center, Inc., and Phoebe Sumter Medical Center, Inc.
Phoebe Worth Medical Center, Inc., located in Sylvester, Georgia, is a 25 bed rural critical
access hospital. It provides inpatient, outpatient, and emergency care services for residents
of Worth County, Georgia.
Phoebe Sumter Medical Center, Inc. , located in Americus , Georgia, is an acute care hospital.
It provides inpatient, outpatient and emergency care services for residents of Sumter County,
Georgia.
Phoebe Putney Indemnity, LLC, is organized as a single parent captive under the captive
insurance laws of the State of South Carolina to insure the risks of Phoebe Putney Health
System, Inc.
Phoebe Foundation, Inc. was established to raise funds of any kind or character to be used
exclusively for charitable, medical, educational and scientific purposes at or in connection
with Phoebe Putney Memorial Hospital, Inc. or the Hospital Authority of Albany-Dougherty
County, Georgia (Authority).
Continued
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1.
Summary of Significant Accounting Policies, Continued
Reorganization
Effective September 1, 1991, the Hospital Authority of Albany-Dougherty County, Georgia
implemented a reorganization plan for the Hospital whereby all the assets, management and
governance of the Hospital was transferred to Phoebe Putney Memorial Hospital, Inc., a notfor-profit corporation, qualified as an organization described in Section 501 (c)3 of the
Internal Revenue Code, pursuant to a lease and transfer agreement. During 2009, the lease
term was renewed for an additional forty years. Subsequent to year end, the lease was
amended. See Note 8 for additional details.
Effective July 1, 2009, the Americus-Sumter County Hospital Authority (Sumter Authority)
implemented a reorganization plan for Sumter Regional Hospital (SRH) whereby all the
assets, management and governance of SRH was transferred to Phoebe Sumter Medical
Center, Inc. , a not-for-profit corporation, qualified as an organization described in Section
501(c)3 of the Internal Revenue Code, pursuant to a lease and transfer agreement. The lease
term is forty years with an annual contribution of $25,000 to the Authority. Under the lease
and transfer agreement, the Sumter Authority was required to construct a new hospital
facility. The new hospital facility is leased to Phoebe Sumter Medical Center, Inc. for the
remainder of the lease term. This transaction is accounted for as a pooling of interest. As
part of the lease and transfer agreement, the Corporation agreed to contribute up to
$25,000,000 to the construction cost of the new facility or the physician recruiting efforts of
Phoebe Sumter Medical Center, Inc. , as needed.
On December 15 , 2011 , the Hospital Authority of Albany-Dougherty County purchased
substantially all assets of Palmyra Park Hospital, LLC (Palmyra), a general acute care
hospital located in Albany, Georgia for approximately $195 million.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Continued
9
1.
Cash and Cash Equivalents
Cash and cash equivalents include certain investments in highly liquid debt instruments with
original maturities of three months or less. The Corporation routinely invests its surplus
operating funds in money market mutual funds.
Allowance for Doubtful Accounts
The Corporation provides an allowance for doubtful accounts based on the evaluation of the
overall collectibility of the accounts receivable. As accounts are known to be uncollectible,
the account is charged against the allowance.
Supplies
Supplies, which consist primarily of drugs, food, and medical supplies, are valued at first-in,
first-out cost, but not in excess of market.
Investments
Investments in equity securities with readily determinable fair values and all investments in
debt securities are measured at fair value in the balance sheets. Investments without a readily
determinable fair value are evaluated for the applicability of the cost or equity method.
Investments qualifying for the equity method are stated at quoted net asset value of shares
held at year end. Investment income or loss (including realized gains and losses on
investments, interest and dividends) is included in excess revenues unless the income or loss
is restricted by donor or law. Unrealized gains and losses on investments are excluded from
excess revenues unless the investments are trading securities.
Derivative Financial Instruments
The Corporation has entered into interest rate swap agreements as part of its interest rate risk
management strategy. These agreements are accounted for under the provisions of FASB
ASC 815 Derivatives and Hedging. FASB ASC 815 establishes accounting and reporting
standards requiring that derivative instruments be recorded at fair value as either an asset or
liability.
Continued
10
1.
Derivative Financial Instruments, Continued
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging
the exposure to variability in expected future cash flows that is attributable to a particular
risk) , the effective portion of the gain or loss on the derivative instrument is reported as a
component of unrestricted net assets. The ineffective component, if any, is recorded in
excess revenues in the period in which the hedge transaction affects earnings. If the hedging
relationship ceases to be highly effective or it becomes probable that an expected transaction
will no longer occur, gains or losses on the derivative are recorded in excess revenues. For
derivative instruments not designated as hedging instruments, the unrealized gain or loss is
recognized in nonoperating gains (losses) during the period of change.
Assets Limited as to Use
Assets limited as to use primarily include assets held by trustees under indenture, assets
restricted by Phoebe Foundation, Inc. , and designated assets set aside by the Board of
Directors for future capital improvements and self-insurance trust agreements, over which the
Board retains control and may at its discretion subsequently use for other purposes. Amounts
required to meet current liabilities of the Corporation have been reclassified in the balance
sheet at July 31 , 2012 and 2011.
Property and Equipment
Property and equipment acquisitions are recorded at cost. Depreciation is provided over the
estimated useful life of each class of depreciable asset and is computed on the straight-line
method. Equipment under capital lease obligations is amortized on the straight-line method
over the shorter period of the lease term or the estimated useful life of the equipment. Such
amortization is included in depreciation and amortization in the financial statements. Interest
cost incurred on borrowed funds during the period of construction of capital assets is
capitalized as a component of the cost of acquiring those assets.
Gifts of long-lived assets such as land, buildings, or equipment are reported as unrestricted
support, and are excluded from excess revenues, unless explicit donor stipulations specify how
the donated assets must be used. Gifts of long-lived assets with explicit restrictions that
specify how the assets are to be used and gifts of cash or other assets that must he used to
acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations
about how long those long-lived assets must be maintained, expirations of donor restrictions
are reported when the donated or acquired long-lived assets are placed in service.
Continued
11
1.
Goodwill
Under FASB authoritative guidance, goodwill and intangible assets with indefinite lives are
no longer amortized, but are tested for impairment annually and more frequently in the event
of an impairment indicator. The accounting standard also requires that intangible assets with
definite lives be amortized over their respective estimated useful lives, and reviewed
whenever events or circumstances indicate impairment may exist.
F ASB authoritative guidance requires that a two-step test be performed to assess goodwill for
impairment. First, the fair value of each reporting unit is compared to its carrying value .
The fair values are computed by the Corporation utilizing the discounted cash flow method.
If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is
performed. The second step is performed if the carrying value exceeds the fair value. The
implied fair value of the reporting unit's goodwill must be determined and compared to the
carrying value of the goodwill. If the carrying value of a reporting unit's goodwill exceeds
its implied fair value, an impairment loss equal to the difference will be recorded.
As of July 31,2012 and 2011, the Corporation had goodwill of approximately $17,013,000
and $16,482,000, respectively , which is subject to the impairment tests prescribed under the
authoritative guidance. In accordance with the accounting standard, the Corporation has
elected July 31st as its annual impairment assessment date. The Corporation completed its
annual impairment assessment and concluded that no goodwill or indefinite lived intangible
asset impairment charge was required.
Deferred Financing Cost
Costs related to the issuance of long-term debt were deferred and are being amortized using
the straight-line method, which approximates the effective interest method, over the life of
the related debt.
Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets are those whose use by the Corporation has been limited by
donors to a specific time period or purpose. Permanently restricted net assets have been
restricted by donors to be maintained hy the Corporation in perpetuity.
Continued
12
1.
Excess Revenues
The statement of operations and changes in net assets includes excess revenues. Changes in
unrestricted net assets which are excluded from excess revenues, consistent with industry
practice, include unrealized gains and losses on investments other than trading securities,
permanent transfers of assets to and from affiliates for other than goods and services, and
contributions of long-lived assets (including assets acquired using contributions which by
donor restriction were to be used for the purposes of acquiring such assets).
Net Patient Service Revenue
The Corporation has agreements with third-party payors that provide for payments to the
Corporation at amounts different from its established rates. Payment arrangements include
prospectively determined rates per discharge, reimbursed costs, discounted charges, and per
diem payments.
Net patient service revenue is reported at the estimated net realizable amounts from patients,
third-party payors, and others for services rendered, including estimated retroactive
adjustments under reimbursement agreements with third-party payors. Retroactive
adjustments are accrued on an estimated basis in the period the related services are rendered
and adjusted in future periods as final settlements are determined.
Charity Care
The Corporation provides care to patients who meet certain criteria under its charity care
policy without charge or at amounts less than its established rates. Because the Corporation
does not pursue collection of amounts determined to qualify as charity care, they are not
reported as revenues .
Donor-Restricted Gifts
Unconditional promises to give cash and other assets to the Corporation are reported at fair
value at the date the promise is received. Conditional promises to give and indications of
intentions to give are reported at fair value at the date the gift is received. The gifts are
reported as eith er temporarily or permanently restricted support if they are received with
donor stipulations that limit the use of the donated assets. When a donor restriction expires,
Continued
13
1.
Donor-Restricted Gifts, Continued
that is, when a stipulated time restriction ends or purpose restriction is accomplished,
temporarily restricted net assets are reclassified as unrestricted net assets and reported in the
statement of operations as net assets released from restrictions. Donor-restricted
contributions whose restrictions are met within the same year as received are reported as
unrestricted contributions in the accompanying financial statements.
Estimated Malpractice and Other Self-Insurance Costs
The provisions for estimated medical malpractice claims and other claims under selfinsurance plans include estimates of the ultimate costs for both reported claims and claims
incurred but not reported.
Income Taxes
Phoebe Putney Health System, Inc. , Phoebe Putney Memorial Hospital, Inc., Phoebe Worth
Medical Center, Inc., Phoebe Sumter Medical Center, Inc. , Phoebe Physician Group, Inc.,
and Phoebe Foundation, Inc. are not-for-profit corporations that have been recognized as
tax-exempt pursuant to Section 501(c)3 of the Internal Revenue Code. Phoebe Putney
Indemnity, LLC is not subject to federal income taxes due to its organization as a single
member LLC. Phoebe Putney Health Ventures, Inc. is a for-profit entity. With respect to its
for-profit entity as well as any unrelated business income generated through the tax exempt
entities, the Corporation accounts for income taxes using the asset and liability method.
Under this method, deferred income tax assets and liabilities are recognized for future income
tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective income tax bases, and operating loss and
income tax credit carryforwards. Deferred income tax assets or liabilities are measured using
enacted rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in rates is recognized in income in the period in which the
enactment date occurs. The Corporation is required to establish a valuation allowance for any
portion of the deferred tax assets that management believes will not be realized.
The accounting policies prescribe when to recognize and how to measure the financial
statement effects of income tax positions taken or expected to be taken on its income tax
returns. These rules require management to evaluate the likelihood that, upon examination by
the relevant taxing jurisdictions, those income tax positions would be sustained. Based on
Continued
14
1.
Income Taxes, Continued
that evaluation, the Corporation only recognizes the maximum benefit of each income tax
position that is more than 50% likely of being sustained. To the extent that all or a portion of
the benefits of an income tax position are not recognized, a liability would be recognized for
the unrecognized benefits, along with any interest and penalties that would result from
disallowance of the position. Should any such penalties and interest be incurred, they would
be recognized as operating expenses.
Based on the results of management's evaluation, no liability is recognized in the
accompanying balance sheet for unrecognized income tax positions. Further, no interest or
penalties have been accrued or charged to expense as of July 31 , 2012 and 2011 or for the
years then ended. The Corporation's open audit periods are for tax years ended 2009-2011.
Impairment of Long-Lived Assets
The Corporation evaluates on an ongoing basis the recoverability of its assets for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is required to be recognized if the carrying value of the
asset exceeds the undiscounted future net cash flows associated with that asset. The
impairment loss to be recognized is the amount by which the carrying value of the long-lived
asset exceeds the asset's fair value. In most instances, the fair value is determined by
discounted estimated future cash flows using an appropriate interest rate. The Corporation
has not recorded any impairment charges in the accompanying consolidated statements of
operations and changes in net assets for the years ended July 31, 2012 and 2011.
Fair Value Measurements
FASB ASC 820, Fair Value Measurement and Disclosures defines fair value as the amount
that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. FASB ASC 820 also establishes a fair
value hierarchy that requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. FASB ASC 820 describes the
following three levels of inputs that may be used:
•
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the
measurement date for identical assets and liabilities. The fair value hierarchy gives the
highest priority to Level 1 inputs.
Continued
15
1.
Fair Value Measurements, Continued
•
Level 2: Observable prices that are based on inputs not quoted on active markets but
corroborated by market data.
•
Level 3: Unobservable inputs when there is little or no market data available, thereby
requiring an entity to develop its own assumptions. The fair value hierarchy gives the
lowest priority to Level 3 inputs.
Recently Issued Accounting Pronouncement
In July 2011, the Financial Accounting Standards Board issued Accounting Standards Update
(ASU) No. 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for
Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities. The
ASU requires health care entities to change the presentation of the statement of operations by
reclassifying the provision for doubtful accounts from an operating expense to a deduction
from patient service revenues. Additionally, the guidance requires enhanced disclosures
about the policies for recognizing revenue, assessing bad debts and qualitative and
quantitative information about the changes in the allowance for doubtful accounts. The
guidance is effective for fiscal years beginning after December 15, 2011, with early adoption
permitted. The Corporation has not early adopted this guidance. While this standard will
have no impact on the Corporation's financial position or results of operations, it will require
the Corporation to reclassify the provision for bad debts from operating expenses to a
component of net revenues for the fiscal year ended July 31, 2013, with retrospective
application required .
In 2012, the Corporation adopted the provisions of Financial Accounting Standards Board
Accounting Standards Update (ASU) No. 2010-24, Presentation of Insurance Claims and
Related Insurance Recoveries. Under the ASU , anticipated insurance recoveries and
estimated liabilities for medical malpractice claims or similar contingent liabilities are to be
presented separately on the balance sheet. The Corporation's adoption of the ASU did not
have a material effect on the financial statements.
Subsequent Event
In preparing these financial statements, the Corporation has evaluated events and transactions
for potential recognition or disclosure through November 9, 2012, the date the financial
statements were to be issued.
Continued
16
1.
Prior Year Reclassifications
Certain reclassifications have been made to the fiscal year 2011 consolidated financial
statements to conform to the fiscal year 2012 presentation. These reclassifications had no
impact on the change in net assets in the accompanying financial statements.
2.
Net Patient Service Revenue
The Corporation has arrangements with third-party payors that provide for payments to the
Corporation at amounts different from its established rates. The Corporation does not believe
that there are any significant credit risks associated with receivables due from third-party
payors.
Revenue from the Medicare and Medicaid programs accounted for approximately 38% and
16%, respectively, of the Corporation's net patient revenue for the year ended July 31, 2012
and 35% and 15%, respectively of the Corporation's net patient revenue for the year ended
July 31, 2011. Laws and regulations governing the Medicare and Medicaid programs are
extremely complex and subject to interpretation. As a result, there is at least a reasonable
possibility that recorded estimates will change by a material amount in the near term.
Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are
prepared and filed and as final settlements are determined.
The Corporation believes that it is in compliance with all applicable laws and regulations and
is not aware of any pending or threatened investigations involving allegations of potential
wrongdoing. However, there has been an increase in regulatory initiatives at the state and
federal levels including the initiation of the Recovery Audit Contractor (RAC) program and
the Medicaid Integrity Contractor (MIC) program. These programs were created to review
Medicare claims for medical necessity and coding appropriateness. The RAC's have
authority to pursue improper payments with a three year look back from the date the claim
was paid. Compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including fines, penalties and
exclusion from the Medicare and Medicaid programs.
Continued
17
2.
Net Patient Service Revenue, Continued
A summary of the payment arrangements with major third-party payors follows:
•
Medicare
Inpatient acute care and rehabilitation services and outpatient services rendered to
Medicare program beneficiaries are paid at prospectively determined rates. These rates
vary according to a patient classification system that is based on clinical, diagnostic, and
other factors.
Inpatient psychiatric services rendered to Medicare program beneficiaries are paid at
prospectively determined per diems.
The Corporation is reimbursed for certain reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports by the Corporation and
audits thereof by the Medicare Administrative Contractor (MAC). The Corporation's
classification of patients under the Medicare program and the appropriateness of their
admission are subject to an independent review by a peer review organization under
contract with the Corporation. The Corporation's Medicare cost reports have been
audited by the MAC through July 31, 2006.
•
Medicaid
Inpatient acute care services rendered to Medicaid program beneficiaries are paid at a
prospectively determined rate per admission. These rates vary according to a patient
classification system that is based on clinical, diagnostic and other factors. Outpatient
services rendered to Medicaid program beneficiaries are reimbursed under a cost
reimbursement methodology.
The Corporation is reimbursed at a tentative rate with final settlement determined after
submission of annual cost reports by the Corporation and audits thereof by the Medicaid
fiscal intermediary. The Corporation's Medicaid cost reports have been audited by the
Medicaid fiscal intermediary through July 31, 2009.
The Corporation also contracts with certain managed care organizations to receive
reimbursement for providing services to selected enrolled Medicaid beneficiaries.
Payment arrangements with these managed care organizations consist primarily of
prospectively determined rates per discharge, discounts from established charges, or
prospectively determined per diems.
Continued
18
2.
Net Patient Service Revenue, Continued
•
Medicaid, Continued
The Corporation participates in the Georgia Indigent Care Trust Fund (ICTF) Program.
The Corporation receives ICTF payments for treating a disproportionate number of
Medicaid and other indigent patients. ICTF payments are based on the Corporation's
estimated uncompensated cost of services to Medicaid and uninsured patients. The
amount of ICTF payments recognized in net patient service revenue was approximately
$8,075,000 and $10,156,000 for the years ended July 31, 2012 and 2011, respectively.
The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) provides for payment adjustments to certain facilities based on the Medicaid
Upper Payment Limit (UPL). The UPL payment adjustments are based on a measure of
the difference between Medicaid payments and the amount that could be paid based on
Medicare payment principles. The net amount of UPL payment adjustments recognized
in net patient service revenue was approximately $1,660,000 and $3,891,000 for the
years ended July 31,2012 and 2011, respectively.
During 2010, the state of Georgia enacted legislation known as the Provider Payment
Agreement Act (the Act) whereby hospitals in the state of Georgia are assessed a
"provider payment" in the amount of 1.45% of their net patient revenue. The Act
became effective July 1, 2010, the beginning of state fiscal year 2011. The provider
payments are due on a quarterly basis to the Department of Community Health. The
payments are to be used for the sole purpose of obtaining federal financial participation
for medical assistance payments to providers on behalf of Medicaid recipients. The
provider payment will result in an increase in hospital payments on Medicaid services of
approximately 11.88%. Approximately $5,778,000 and $6,006,000 relating to the Act is
included in medical supplies and other in the accompanying statement of operations and
changes in net assets for the years ended July 31, 2012 and 2011 , respectively.
•
Other Arrangements
The Corporation has also entered into payment arrangements with certain commercial
insurance carriers, health maintenance organizations, and preferred provider
organizations. The basis for payment to the Corporation under these arrangements
includes prospectively determined rates per discharge, discounts from established charges,
and prospectively determined daily rates .
Continued
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS , Continued
3.
Uncompensated Services
The Corporation was compensated for services at amounts less than its established rates.
Charges for uncompensated services for 2012 and 2011 were approximately $946,200,000
and $893,800,000, respectively.
Uncompensated care includes charity and indigent care services of approximately
$78,800,000 and $80,700,000 in 2012 and 2011 , respectively. The cost of charity and
indigent care services provided during 2012 and 2011 were approximately $34,500,000 and
$31,100,000, respectively, computed by applying a total cost factor to the charges foregone.
The following is a summary of uncompensated services and a reconciliation of gross patient
charges to net patient service revenue for 2012 and 2011 .
Gross patient charges
2012
2011
$ 1,539,975,485
$ 1,457,925 ,361
78,791,575
457,430,863
185,221,205
152,658,243
72,070,178
80,727,333
392,711 ,178
163,075,574
190,773,967
66,504,333
946,172,064
893,792,385
72,070,178
66,504,333
874,101,886
827,288,052
Uncompensated services:
Charity and indigent care
Medicare
Medicaid
Other allowances
Bad debts
Total uncompensated care
Less bad debts
Deductions from patient service revenue
$
Continued
20
665,873,599
$
630,637,309
4.
Investments
Assets Limited as to Use
The composition of assets limited as to use at July 31, 2012 and 2011 is set forth in the
following table. Assets limited as to use are classified as trading and are stated at fair value.
2012
2011
$ 6,382,900
366, 170
6,110,884
49,803,608
21 ,807,935
7,827,524
7,780,217
2,099,967
1,013,126
7,000,000
58,354,801
$ 24,979,718
360,754
10,086,846
19,186,874
24,372,611
8,481,640
6,011,110
1,998,564
1,069,962
64,727,209
24,282,612
76,686,139
31,228,943
Total board designated for capital
improvements
257,556,953
263,387,231
By board for self insurance:
Mutual funds- growth funds
Mutual funds - fixed income funds
Alternative investments in hedge funds
20,128,830
14,716,348
4 ,210,687
7,589,615
12,111,145
2,228,286
39,055,865
21,929,046
1,664,022
1,570, 155
By board for capital improvements:
Money market funds
Certificates of deposit
Equity securities
Mutual funds -fixed income funds
Mutual funds - index funds
Mutual funds - growth funds
Real estate investment funds
Government debt securities
Corporate debt securities
Annuity contracts invested in equity securities
Common collective trusts invested in equity
securities
Limited partnerships invested in equity securities
Total board designated for self insurance
Under bond indenture agreement:
Continued
21
58 ,924,070
4.
Investments, Continued
Assets Limited as to Use, Continued
2012
Money market funds
Equity securities
Mutual fundsfixed income funds
Common collective trusts invested in equity
securities
$
2,365,147
176,519
1,407,928
3,829,114
169,269
198,022
2011
$
1,373,730
1,087,832
1,310,947
3,225,451
555,291
194,772
459,729
556,043
8,605,728
8,304,066
497,744
1,083,354
952,285
100,000
374 244
Total permanently restricted
1,581,098
1,426,529
$ 308,463,666
$296,617,027
Total restricted by Phoebe Foundation, Inc.
Permanently restricted:
Money market funds
Hedge funds include investments in various funds that invest both long and short primarily in
U.S. common stocks. Management of the hedge funds has the ability to shift investments
from value to growth strategies, from small to large capitalization stocks, and from a net long
position to a net short position. The fair values of the investments in this category have been
estimated using the net asset value per share of the investments with realized and unrealized
gains and losses reflected in investment income. These securities have no unfunded
commitments and are redeemed based on the timing of the investments and the managers'
terms which vary across the portfolio.
Continued
22
4.
The following table provides a summary of the Corporation's investments as of July 31, 2012
and 2011, for which the cost basis of securities exceeds fair value, aggregated by investment
category and length of time that individual securities have been in continuous unrealized loss
positions:
Jul 31, 2012
Less Than 12 Months
Unrealized
Fair Value
Losses
Description
of Securities
Equity securities
Alternative
investments in
hedge funds
Limited partnerships
invested in
equity securities
Common collective
trusts invested in
equity securities
Real estate investment
trusts
Total
$
352,838
$(
193,163)
6,208,097
(
658,820)
12 Months or More
Unrealized
Fair Value
Losses
$ 16,022,531
1,930,273
$(1,862,767)
( 436,977)
Total
Fair Value
Unrealized
Losses
$ 16,375,369
$(2,055,930)
6,208,097
(
658,820)
1,930,273
(
436,977)
8,238,819
(3,771,578)
8,238,819
(3,771,578)
872, 199
60,821)
872,199
60,821)
$ 15.671.953
$(4,684,382)
$33,624.757
$(6,984, 126)
$ 17,952,804
$(2,299.744)
Jul 31, 2011
Less Than 12 Months
Unrealized
Fair Value
Losses
Description
of Securities
Equity securities
Alternative
investments in
hedge funds
Limited partnerships
invested in
equity securities
Conm1on collective
trusts invested in
equity securities
Total
$
1,093,483
$(
12 Months or More
Unrealized
Fair Value
Losses
Total
Fair Value
Unrealized
Losses
97,973)
$ 8,682,698
$(1 ,525, 106)
$ 9,776,181
$(1 ,623 ,079)
2 ,297,660
2,340)
104,626
1,892)
2,402,286
4 ,232)
2,782,237
17, 763)
1,430,975
599,025)
4,213,212
( 616,788)
12,359,902
(1 ,874,046)
12,359,902
(1,874,046)
$ 22.578.201
$(4,000.069)
$ 28.751.581
$(4, 118.145)
$ 6.1 73,380
$( 118.076)
Continued
23
(
4.
Management evaluates securities for other-than-temporary impairment at least on an annual
basis, and more frequently when economic or market concerns warrant such evaluation. In
analyzing an issuer's financial condition, management considers whether the investments are
issued by the federal government or its agencies, whether downgrades by bond rating
agencies have occurred, and the results of reviews of the issuer's financial condition.
Management has considered the nature of investments in an unrealized loss position, the
cause of their impairment, the severity and duration of their impairment, the current global
economic conditions, the Corporation's intentions to sell or ability to hold the investments,
and other relevant information available to management in determining if investments are
other than temporarily impaired. Based on an evaluation of these factors, the Corporation
has concluded that the declines in fair values of the Corporation's investments reported in the
above table are temporary.
Investment income, including realized gains and losses and unrealized gains and losses for the
above trading securities are as follows for the years ending July 31, 2012 and 2011:
Dividend income
Interest income
Realized gains (losses)
Investment expenses
Unrealized gains (losses)
Total
2012
2011
$ 2 ,847,379
979,330
2,946,662
(1,219,358)
(8,762,197)
$ 3,195 ,951
2,137,830
13,608,503
( 1,547,282)
25,361,637
$(3 .208. 184)
$ 42.756.639
The Corporation's investments are exposed to various risks such as interest rate, market and
credit risks . Due to the level of risk associated with certain investment securities, it is at
least reasonably possible that changes in the values of investment securities will occur in the
near term and that such changes could materially affect the amounts reported in the
accompanying consolidated financial statements.
Continued
24
4.
A comparison of the Corporation's investment holdings to the investment policy targets at
July 31, 2012 and 2011 is set forth in the following table:
2012
Portfolio
Total
2011
Portfolio
Allocation
Investment
Policy
Target
Portfolio
Total
Portfolio
Allocation
Investment
Policy
Target
U.S. equities
Non U.S. equities
Emerging markets
Hedge funds
Real assets
Opportunistic
funds
U.S. fixed
income
Cash and cash
equivalents
$ 63,114,479
45,267,681
15,624,899
67,115,122
21,439,874
20%
15%
5%
22%
7%
20%
16%
6%
20%
13%
$ 73,012,914
45,287,913
14,190,340
59,118,842
20,188,013
25 %
15 %
5%
20%
7%
20%
16%
6%
20%
13 %
10,956,074
4%
5%
12,884,872
4%
5%
74,194,070
24%
20 %
44,367,285
15%
20 %
10,751,467
_2%
- %
27,566,848
9%
_-_%
Total
$ 308,463,666
100%
100%
$ 296.617.027
100%
100%
The Corporation's investment portfolio is managed by a variety of fund managers. Each fund
may from time to time hold cash due to the timing of sales and purchases activity. Based on
the investment policy target, the entire fund is considered to be invested.
Continued
25
5.
Property and Equipment
A summary of property and equipment at July 31, 2012 and 2011 follows:
Land
Land improvements
Building
Equipment
Less accumulated depreciation
Construction in progress
Net property and equipment
2012
2011
$ 27,659,636
6,027,101
376,178,672
291,253,826
701,119,235
370,358,058
330,761,177
57,144,210
$ 24,639,687
4,140,800
333,485,418
258,626,663
620,892,568
337,418,337
283,474,231
40,000,708
$ 387,905,387
$ 323,474,939
Depreciation expense for the years ended July 31, 2012 and 2011 amounted to approximately
$32,700,000 and $29,400,000, respectively.
Construction contracts exist for various projects at year end with a total commitment of
$35,900,000. At July 31, 2012, the remaining commitment on these contracts approximated
$10,900,000.
6.
Deferred Financing Costs
Bond issue costs and loan origination fees are amortized over the life of the debt instrument.
Amortization expense and write-offs for the years ended July 31, 2012 and 2011 amounted to
approximately $600,000 and 200,000, respectively.
Continued
26
7.
Goodwill
Goodwill is related to the Corporation's purchase of area health care clinics. The goodwill is
evaluated annually for impairment.
The changes in the carrying amount of goodwill for the years ended July 31, 2012 and 2011, are
as follows:
Balance at beginning of year:
Goodwill
Accumulated impairment losses
Goodwill acquired during the year
Impairment losses
Balance at end of year:
Goodwill
Accumulated impairment losses
Total
8.
2012
2011
$ 16,482,077
$ 11,284,542
16,482,077
530,598
11,284,542
5,197,535
17,012,675
16,482,077
$ 17.012.675
$ 16.482.077
Other Receivables I Hospital Authority of Albany-Dougherty County, Georgia Lease
Amendment
As of July 31, 2012, other receivables of approximately $217,900,000 represent amounts
advanced to the Authority for the acquisition and subsequent operation of Palmyra.
Effective August 1, 2012, the lease and transfer agreement between the Hospital and the
Authority was amended and restated. The amendment was made for the transfer and
inclusion of the hospital formerly known as Palmyra Medical Center which was acquired by
the Hospital Authority of Albany-Dougherty County, Georgia. The amendment included the
extension of the lease for a term of forty years from the date of the current amendment.
Continued
27
8.
Other Receivables I Hospital Authority of Albany-Dougherty County, Georgia Lease
Amendment, Continued
The following assets and liabilities were recognized by the Authority in the acquisition of
Palmyra effective December 16, 2011 (at fair value):
Prepaid expenses, supplies, and other assets
Capital assets
Current liabilities
Total identifiable assets
$
3,888,017
37,968,750
(
886,258)
40,970,509
157,345,334
Goodwill
Total
$ 198.315.843
The above estimated fair values of assets acquired and liabilities assumed are provisional and
are based on the information that was available as of the acquisition date to estimate the fair
value of assets acquired. The Authority believes that information provides a reasonable basis
for estimating the fair values of assets acquired and liabilities assumed, but the Authority is
waiting for additional information necessary to finalize those fair values. Thus, the
provisional measurements of fair value set forth above are subject to change. Such changes
could be significant. The amendment to the lease agreement will result in transfer of the
above assets to the Hospital as reimbursement for the advances to the Authority. The assets
will be subject to subsequent impairment considerations during fiscal year 2013, which may
result in adjustments to amounts recorded.
9.
Other Assets
During the construction of the new hospital facility, the Corporation advanced the Sumter
Authority approximately $35,000,000 for construction and other assets. The Corporation has
also contributed funds toward the recruitment of physicians. The Corporation agreed to fund
construction and recruitment at a maximum not to exceed $25,000,000 should amounts from
federal and state agencies and other third parties be less than the actual costs of construction
and recruitment. As of July 31, 2012, the Corporation has recorded a $25,000,000
contribution advance toward the construction of the new hospital contingent upon inadequate
funding from federal and state agencies and other third parties. The remaining $10,000,000
is in other assets as a receivable. The Sumter Authority is pursuing receipt of funds from
federal and state agencies and other third parties sufficient to repay the $35,000,000.
Continued
28
10.
Short-Term Debt
The Corporation entered into a loan agreement with Bank of America for an amount of
$100,000,000 bearing interest at LIDOR plus 0.29% with a maturity date of December 15,
2012 and collateralized by the executed Joan agreement. The outstanding balance on the Joan
at July 31, 2012 was $100,000,000. The purpose of the loan agreement was to provide funds
to the Authority for the purchase of Palmyra Park Hospital, LLC.
11.
Long-Term Debt
2012
2011
$ 15,680,000
$ 16,980 ,000
2008A Series Revenue Anticipation Certificates,
payable in varying annual amounts from
$1,295,000 in 2013 to $3,800,000 in 2032;
bearing interest at a daily rate to be adjusted by
the Remarketing Agent.
49,840,000
51,250,000
2008B Series Revenue Anticipation Certificates,
$1,290,000 in 2013 to $3,795 ,000 in 2032;
bearing interest at a daily rate to be adjusted by
the Remarketing Agent.
49,750,000
51 ,150,000
2010A Series Revenue Anticipation Certificates,
$730,000 in 2013 to $11,355,00 in 2039;
bearing interest at a monthly rate to be
adjusted by the Remarketing Agent.
98,560,000
99,000,000
213,830,000
4,7 15,000
209,115,000
50,482
796,473
219,176,473
5,262,089
213,914,384
212,446
$ 209.064.518
$ 213.701,938
1993 Series Revenue Anticipation Certificates,
$1,400,000 in 2013 to $2,120,000 in 2020;
bearing interest at 5 .40% .
Note payable, paid off in January 2012.
Less current portion
Less unamortized discount
Continued
29
PHOEBE PUTNEY HEALTH SYSTEM, INC .
11.
Long-Term Debt, Continued
The Series 1993 Bonds are subject to redemption prior to their stated maturities, at the option
of the Authority at the direction of the Corporation on or after September 1, 2003 from any
funds deposited with the Trustee and available for such purposes, as a whole at any
time, or in part from time to time on any interest payment date , at the redemption prices
(expressed as a percentage of the principal amount redeemed) , plus accrued interest to the
redemption date.
The Series 2008A and 2008B Revenue Certificates were issued on October 30, 2008 for the
purpose of redeeming the Series 1991, 1996 and 2002 Revenue Certificates. Series 2008A
and 2008B Revenue Certificates bear interest at a daily rate adjusted by SunTrust Robinson
Humphrey, Inc. The Corporation may convert the interest rate upon compliance with terms
and provisions of the indenture.
The Series 2010A Revenue Certificates were issued on July 9, 2010 for the purpose of
reimbursing the Corporation for prior additions, extensions and improvements to the
Corporation's facilities. The 2010A Revenue Certificates bear interest at a monthly rate
adjusted by J. P. Morgan Chase Bank, N.A. The Corporation may convert the interest rate
upon compliance with terms and provisions of the indenture.
Series 1993, 2008A, 2008B and 2010A Revenue Certificates are secured by all receipts of,
and revenue, income and money derived from the Corporation's operation of the Hospital
premises.
Under the terms of the 1993 Certificate Indenture, the Corporation is required to maintain
certain deposits with a trustee. Such deposits are included with assets limited as to use in the
financial statements. The 1993, 2008A, 2008B, and 2010A Certificate Indentures also place
limits on the incurrence of additional borrowings and require that the Corporation satisfy
certain measures of financial performance as long as the notes are outstanding.
Continued
30
PHOEBE PUTNEY HEALTH SYSTEM, INC .
11.
Long-Term Debt, Continued
Maturities and sinking fund requirements of long-term debt for the next five years are as
follows:
12.
2008A
2008B
2010A
Year
1993
2013
2014
2015
2016
2017
Thereafter
$ 1,400,000
1,400,000
1,580,000
1,660,000
1,745,000
7,895,000
$ 1,295,000
1,575,000
1,610,000
1,835,000
1,790,000
41,735,000
$ 1,290,000
1,575,000
1,605,000
1,835,000
1,780,000
41,665,000
$
120,000
97,070,000
4,715,000
4,905,000
5,080,000
5 ,330,000
5,435,000
188,365,000
Total
$ 15.680.000
$ 49.840.000
$ 49.750.000
$ 98.560.000
$ 213.830.000
730,000
355,000
285,000
Total
$
Derivative Financial Instruments
The Corporation entered into fixed pay and constant maturity swaps to effectively swap
variable interest rates to fixed interest rates thus reducing the impact of interest rate changes
on future interest expense. The fair market value of the swaps are reported in other liabilities
on the balance sheet. The critical terms of the swaps are as follows:
$21.145MM Fixed Pay LIBOR Swap- Non-Hedge
2012
Notional amount
Fair market value
Life remaining on swap
2011
$ 19,373,629
$ 19,599,509
$( 6,894,910)
$( 3,272,590)
14 Years
15 Years
$25MM Fixed Pay LIBOR Swap - Non-Hedge
2012
Notional amount
Fair market value
Continued
31
2011
$ 22,905 ,686
$23, 172,747
$( 7,291,224)
$( 4,248,373)
14 Years
15 Years
12.
$2SMM Fixed Pay LIBOR Swap- Non-Hedge
Notional amount
Fair market value
2012
2011
$ 22,905,686
$( 5,831 ,714)
14 Years
$23, 172,747
$( 3,869,224)
15 Years
$24.58SMM Fixed Pay LIBOR Swap - Non-Hedge
2012
Notional amount
Fair market value
2011
s 16,980,000
$
$
$( 1,484,220)
5 Years
Constant Maturity LIBOR Swap- Non-Hedge
Notional amount
Fair market value
2012
2011
$ 40,432,590
$ 3,091,820
20 Years
s 41,462,590
$ 3,687,392
21 Years
2012
Notional amount
Fair market value
$ 40,432,590
$ 3,249,267
20 Years
2011
$ 41,462,590
4,143 ,373
21 Years
s
Notional amount
Fair market value
Continued
32
2012
2011
$ 80,865,180
$( 358,711)
1 Year
$ 82,925 , 181
$
437,085
2 Years
12.
The swaps were issued at market terms so that they had no fair value at their inception. The
carrying amount of the swaps has been adjusted to fair value at the end of the year which,
because of changes in forecasted levels of the LIBOR, resulted in reporting a liability. As the
net swaps were in a liability position as of July 31, 2012, the Corporation deemed the
capacity to perform on the part of the derivative counterparty to be of little or no concern;
and no adjustment was applied to standard market valuation practices.
The swap results are included in excess revenues. For the years ending July 31 , 2012 and
2011, this earnings impact totaled approximately $(7,404,000) and $2,593,000, respectively.
13.
Temporarily and Permanently Restricted Net Assets
A summary of the restricted net assets at July 31, 2012 and 2011 follows:
2012
2011
$ 5,033.647
$ 4.769.727
$ 1.581.098
$ 1,426.529
Temporarily Restricted Net Assets
Permanently Restricted Net Assets
Restricted investments to be held in perpetuity
by Phoebe Foundation, Inc.
Continued
33
14.
Pension Plan
The Corporation has a defined benefit pension plan covering all full time regular employees
working 1,000 hours or more in a twelve month period with an employment date before
December 31, 2006. The plan provides benefits that are based upon earnings and years of
service. The Corporation issues a publicly available financial report that includes financial
statements and required supplementary information for the Retirement Plan for Employees of
Phoebe Putney Health System, Inc. That report may be obtained by contacting the
management of the Corporation.
The following table sets forth the defined benefit pension plan funded status and amounts
recognized in the financial statements at July 31, 2012 and 2011:
2011
2012
Plan assets at fair value at July 31
Projected benefit obligation at July 31
Funded status
Amounts recognized in the consolidated balance
sheet consist of:
Noncurrent liabilities
Amounts recognized in unrestricted net assets:
Net actuarial loss
Prior service cost not yet recognized in net
periodic pension cost
Deferred pension cost
$ 150,375,259
289,274,601
$ 139,801 ,388
222,867,378
$(138,899,342)
$( 83,065.990)
$(138.899.342)
$( 83,065.990)
$(120,826,080)
$( 61,752,564)
(
659,386)
$(121.485.466)
Weighted-average assumptions used to determine
pension benefit obligations:
Discount rate
Rate of compensation increase
Weighted-average assumptions used to determine
net periodic benefit cost:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
Continued
34
(
840,808)
$( 62.593,372)
4.57 %
4.00 %
5.41 %
4.00 %
5.41 %
8.75 %
4.00 %
5.60%
8.75 %
4.00 %
14.
Pension Plan, Continued
The Corporation's expected rate of return on plan assets is determined by the plan assets'
historical long-term investment performance, current asset allocation, and estimates of future
long-term returns by asset class.
The following table sets forth the components of net periodic cost and other amounts
recognized in unrestricted net assets for the years ended July 31, 2012 and 2011:
Service cost
Interest cost
Expected return on plan assets
Amortization of recognized net actuarial loss
Net periodic benefit cost
Other changes in plan assets and benefit obligations
recognized in unrestricted net assets:
Net actuarial (gain) loss
Amortization of net actuarial loss
Total recognized in unrestricted net assets
Total recognized in net periodic benefit
cost and unrestricted net assets
Continued
35
2012
2011
$ 11,688,062
12,361,171
(12,182,27 1)
181,422
3 ,276,175
$ 10,845,860
11,030,950
( 9,959,269)
181,422
3,128,115
15,324,559
15,227,078
62,349,691
( 181,422)
( 3,276,175)
( 2,677 ,828)
( 181,422)
( 3,128 ,115)
58,892,094
( 5,987 ,365)
$ 74,216.653
$ 9.239.713
14.
The change in projected benefit obligation for the defined benefit pension plan for the years
ended July 31, 2012 and 2011 included the following components:
2012
2011
$ 222,867,378
11 ,688,062
12,361,171
46,967,870
( 4,609,880)
$ 199,173,107
10,845,860
11,030,950
5,966,175
( 4, 148,714)
Projected benefit obligation, end of year
$ 289.274.601
$ 222.867.378
Accumulated benefit obligation
$ 225,276,957
$ 179,408,984
Projected benefit obligation, beginning of year
Service cost
Interest cost
Actuarial (gain) or loss
Benefits paid
The change in fair value of plan assets for the years ended July 31, 2012 and 2011 included
the following components:
Plan assets at fair value, beginning of year
Actual return on assets
Employer contributions
Benefits paid
Plan assets at fair value, end of year
2012
2011
$ 139,801,388
( 3,199,550)
18,383,301
( 4,609,880)
$ 115,195,692
18,603,272
10,151,138
( 4,148,714)
$ 150,375.259
$ 139,801,388
The Corporation anticipates making a contribution during fiscal year 2013 of $7,000,000.
Continued
36
14.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are
expected to be paid:
Year Ending July 31
Pension Benefits
$
$
$
$
2013
2014
2015
2016
2017
2018 - 2022
6,288,000
6,913,000
7,674,000
8,462,000
$ 9,400,000
$ 65,166,000
The expected benefits to be paid are based on the same assumptions used to measure the
Corporation's benefit obligation at July 31 , 2012.
The actuarial loss and prior service cost to be recognized during the next 12 months
beginning August 1, 2012 is as follows:
Amortization of net actuarial loss
Amortization of prior year service costs
Total
$
6,827,535
181 ,422
$ 7 .008.957
Continued
37
14.
Plan Assets
The composition of plan assets at July 31, 2012 and 2011 is as follows:
Target
Allocation
Asset category:
U.S. equity securities
Fixed income
Real assets
Opportunistic
Hedge funds
Non U.S. equity securities
Emerging markets
Total
2012
Pension Benefits
2011
- %
20%
20%
13%
5%
20%
16 %
6%
6%
22%
23 %
4%
5%
20 %
15%
5%
5%
25%
15 %
7%
5%
18%
19%
6%
100 %
100 %
100%
The Corporation's investment strategy is to manage the portfolio to preserve principal and
liquidity while maximizing the return on the investment portfolio through the full investment
of available funds. The portfolio is diversified by investing in multiple types of investmentgrade securities. The investment policy requires assets of the plan to be primarily invested in
securities with at least an investment grade rating to minimize interest rate and credit risk.
The plan assets are long-term in nature and are intended to generate returns while preserving
capital.
Pension assets are invested in equities, debt securities, cash and cash equivalents, hedge
funds, and U.S. government securities. The allocation between different investment vehicles
is determined by the Corporation, based on current market conditions , short-term and longterm market outlooks, and cash needs for distributions and plan expenses. Assumptions for
expected returns on plan assets are based on historical performance, long-term market
outlook, and a diversified investment approach designed to provide steady, consistent returns
that minimize market fluctuations. The Corporation utilizes the services of a professional
investment advisor in the selection of individual fund managers. The investment advisor
tracks the performance of each fund manager and makes recommendations for redistributions,
as needed, to comply with targeted allocations or to replace underperforming funds.
Continued
38
14.
The Corporation attempts to mitigate investment risk by rebalancing between investment
classes as the Corporation's contributions and monthly benefit payments are made. Although
changes in interest rates may affect the fair value of a portion of the investment portfolio and
cause unrealized gains and losses, such gains or losses would not be realized unless the
investments are sold.
The fair values of the Corporation's pension plan assets at July 31, 2012 and 2011, by asset
category are as follows:
Fair Value Measurements At July 31, 2012
Quoted Prices
In Active
Markets For
Identical Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level2)
Significant
Unobservable
Inputs
(Level 3)
Asset Category
U .S. equity securities
Fixed income
Real assets
Opportunistic
Hedge funds
Non U.S. equity
securities
Emerging markets
Total
$
9,652,969
33,529,046
33,954,690
6,079,495
7,058,785
30,139,157
$ 1,500,000
8,847,122
3,767,073
23,130,814
6,830,303
$ 150,375,259
$ 14,114,195
Continued
39
$
8,152,969
14,009,501
33,954,690
2,016,982
7,058 ,785
20,441,992
$
10,672,423
295,440
9,697,165
11,973,041
6,830,303
11' 157,773
$ 104,438,263
$ 31,822,801
14.
Fair Value Measurements At July 31, 2011
Quoted Prices
In Active
Markets For
Identical Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Asset Category
U.S. equity securities
Fixed income
Real assets
Opportunistic
Hedge funds
Non U.S. equities
Emerging markets
Total
$
7,723 ,973
35, 104,032
21,346,481
9,689,522
7,080,077
24,489,517
25,936,642
8,431,144
$ 139,801,388
$
6 ,692,558
5,936,013
1,000
$ 12,629,571
$ 7,723,973
19,013,062
21 ,346,481
3 ,557,969
7,080,077
13,906,977
13,218,369
8,431' 144
$
$ 94,278 ,052
$ 32,893,765
9,398,412
195,540
10,582,540
12,717,273
Hedge funds include investments in various funds that invest both long and short primarily in
U.S. common stocks . Management of the hedge funds has the ability to shift investments
from value to growth strategies, from small to large capitalization stocks, and from a net long
position to a net short position. The fair values of the investments in this category have been
estimated using the net asset value per share of the investments . These securities have no
unfunded commitments and are redeemed based on the timing of the investments and the
managers' terms which vary across the portfolio.
Continued
40
14.
Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Non U.S.
Equities
July 31, 2010
Realized and
unrealized
gains (losses)
included
in other
nonoperating
revenue
Purchases
Sales
July 31, 2011
Realized and
unrealized
gains (losses)
included
in other
nonoperating
revenue
Purchases
Sales
July 31, 2012
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
U.S.
Real
Hedge
Equities
Assets
Funds
$ 10,424,522
$ 7,718,541
$ 82,880
$ 10,518,243
2,131,061
161 ,690
1,679,871
6,409
106,251
783,357
(
Total
$28,744,186
719,060)
4,600,698
267,941
( 719,060)
32,893,765
12,717,273
9,398,412
195,540
10,582,540
( 1,779,362)
260,680
(
40,818)
1,274,011
900
99,000
17 ,197
(
902,572)
(
$ 11.157.773
(
$ 10,672,423 $295,440
487,254)
359,680
943,390)
$ 9.697.165 $31.822.801
Financial assets valued using Level 1 inputs are based on unadjusted quoted market prices within
active markets. Financial assets valued using Level 2 inputs are based primarily on quoted prices
for similar investments in active or inactive markets. Financial assets using Level 3 inputs were
primarily valued using management's assumptions about the assumptions market participants
would utilize in pricing the asset or liability. Valuation techniques utilized to determine fair value
are consistently applied.
Continued
41
14.
The Corporation maintains defined contribution pension plans covering substantially all
eligible employees. Employees may deposit a portion of their earnings for each pay period
on a pre-tax basis and the Corporation matches 50 % of each participant's voluntary
contributions up to a maximum of 4 % of the employee's annual salary. Matching
contribution expenses for the years ended July 31, 2012 and 2011 totaled approximately
$3,190,000 and $4,037,000, respectively. For 2012 and 2011, the total discretionary
contributions paid totaled approximately $3,343,000 and $3,770,000, respectively.
The Corporation maintains an unfunded Supplemental Executive Retirement plan ("SERP"),
which provides retirement benefits to certain officers and select employees. This plan is nonqualified and does not have a minimum funding requirement. The liability for this SERP
obligation is included in accrued expenses in the accompanying balance sheets.
15.
Employee Health Insurance
The Corporation has a self-insurance program under which a third-party administrator
processes and pays claims. The Corporation reimburses the third-party administrator for
claims incurred and paid and has purchased stop-loss insurance coverage for claims in excess
of $150,000 for each individual employee. Total expenses related to this plan were
approximately $35,894,000 and $34,253,000 for 2012 and 2011 , respectively.
16.
Malpractice Insurance
Effective August 1, 2006, Phoebe Putney Indemnity, LLC (PPI), located in South Carolina,
issued a claims-made policy covering professional and general liabilities, personal injury,
advertising injury liability, and contractual liability of the Corporation with a retroactive date
of January 1, 1990. Under the policy, the limit of liability is $5,000,000 per occurrence,
with an annual aggregate of $15,000,000.
Effective July 1, 2009, PPI added Phoebe Sumter Medical Center, Inc., as an additional
insured under the policy. Under the policy endorsement, the limit of liability is $750,000
for claims occurring prior to July 1, 2009 and $5,000,000 for claims occurring on or after
July 1, 2009.
PPI also provides excess liability coverage to the Corporation, which covers $25,000,000 per
occurrence in excess of the underlying insurance coverage of $30,000,000 for the years
ending July 31, 2012 and 2011. The excess policy has an annual aggregate limit of
$25,000,000. All of the risk related to this coverage has been ceded to unrelated reinsurers
via a contract of reinsurance.
Continued
42
16.
Malpractice Insurance, Continued
Various claims and assertions have been made against the Corporation in its normal course of
providing services. In addition, other claims may be asserted arising from services provided
to patients in the past. In the opinion of management, adequate provision has been made for
losses which may occur from such asserted and unasserted claims that are not covered by
liability insurance.
17.
Concentrations of Credit Risk
The Corporation grants credit without collateral to its patients, most of whom are residents of
Southwest Georgia and are insured under third-party payor agreements. The mix of
receivables from patients and third-party payors at July 31, 2012 and 2011 was as follows:
2012
2011
Medicare
Medicaid
Blue Cross
Commercial
Patients
26%
20%
17 %
23%
14 %
28%
19%
15 %
24%
14 %
Total
100 %
100 %
At July 31, 2012, the Corporation had deposits at major financial institutions which exceeded
the $250,000 Federal Deposit Insurance Corporation limits. Management believes the credit
risks related to these deposits is minimal.
Continued
43
18.
Functional Expenses
The Corporation provides general health care services to residents within its geographic
location. Expenses related to providing these services are as follows:
July 31,
Patient care services
General and administrative
Interest expense
Total
19.
2012
2011
$ 462,608,360
101,548,177
32,714,196
5,680,033
72,070,178
$ 432,259,508
90,027,598
29,386,828
5,593,086
66,504,333
$ 674.620.944
$ 623.771.353
Fair Values of Financial Instruments
The following methods and assumptions were used by the Corporation in estimating the fair
value of its financial instruments:
•
Cash and cash equivalents: The carrying amount reported in the balance sheet for cash
and cash equivalents approximates its fair value.
•
Assets limited as to use: Fair values, which are the amounts reported in the balance sheet
are based on quoted market prices, if available, or estimated using quoted market prices
for similar securities.
•
Accounts payable and accrued expenses: The carrying amount reported in the balance
sheet for accounts payable and accrued expenses approximates its fair value.
•
Estimated third-party payor settlements: The carrying amount reported in the balance
sheet for estimated third-party payor settlements approximates its fair value.
•
Derivative financial instruments: The carrying amount reported in the balance sheet for
derivative financial instruments approximates its fair value.
Continued
44
19.
Fair Values of Financial Instruments, Continued
•
20.
Short-term and long-term debt: Fair values of the Corporation's revenue notes are based
on current traded value. The fair value of the Corporation's remaining debt is estimated
using discounted cash flow analyses, based on the Corporation's current incremental
borrowing rates for similar types of borrowing arrangements. The carrying amount
reported in the balance sheet for debt approximates its fair value.
Fair Value Measurement
Following is a description of the valuation methodologies used for assets at fair value. There
have been no changes in the methodologies used at July 31, 2012 and 2011.
•
Money market funds and certificates of deposit: Valued at amortized cost, which
approximates fair value.
•
Equity securities: Certain equity securities are valued at the closing price reported on the
active market on which the individual securities are traded. Other equity securities are
valued based on quoted prices for similar investments in active or inactive markets or
valued using observable market data. When quoted prices or observable inputs are not
available, securities are valued using management's assumptions about the assumptions
market participants would utilize in pricing the security.
•
Mutual funds and alternative investments in hedge funds: Valued at the net asset value
(NAV) of shares held at year end. Certain investments invest in a variety of growth and
value assets. Management of the funds has the ability to shift investments as they feel
necessary to meet established goals. These securities have no unfunded commitments and
are redeemed based on the timing of the investments and managers' terms which vary
across the portfolio.
•
Real estate investment trusts: Valued on the basis of a discounted cash flow approach,
which includes the future rental receipts, expenses, and residual values as the highest and
best use of the real estate from a market participant view as rental property.
Continued
45
20.
Fair Value Measurement, Continued
•
Corporate debt securities: Certain corporate securities are valued at the closing price
reported in the active market in which the security is traded. Other corporate securities
are valued based on yields currently available on comparable securities of issuers with
similar credit ratings. When quoted prices are not available for identical or similar
securities, the security is valued under a discounted cash flows approach that maximizes
observable inputs, such as current yields of similar instruments, but includes adjustments
for certain risks that may not be observable, such as credit and liquidity risks.
•
Government debt securities: Certain U. S. government securities are valued at the
closing price reported in the active market in which the individual security is traded.
Other U.S. governmental securities are based on yields currently available on comparable
securities of issuers with similar credit ratings.
•
Common collective trusts: Valued using net asset value (NA V). The NA V's are based
on fair value, determined based on prices quoted and published by the investment
manager of the accounts. Quoted prices are determined based on fair value of the
underlying assets.
•
Limited partnerships invested in equity securities: Determined using market values of
underlying assets held by the limited partnerships. The limited partnerships invest in a
variety of equity securities, some of which do not have readily available market prices.
In the absence of readily available market prices, the fair values are estimated by the
investment managers of those equity securities. Estimated values may differ from the
values that would have been used if readily available market prices existed or if the equity
securities were liquidated at the valuation date.
•
Derivatives: Valued using forward LIBOR curves. Values are then verified against
counterparty mark-to-market valuations.
The preceding methods described may produce a fair value calculation that may not be
indicative of net realizable value or reflective of future fair values. Furthermore, although
management believes its valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different fair value measurement at the
reporting date.
Continued
46
20.
Investments in mutual funds, hedge funds, common collective trusts, and limited partnerships
include redemption restrictions as to frequency, redemption amounts and notice periods.
Redemption frequency ranges from bi-weekly to annually. Redemption limitations include
both minimum redemption amounts and limits based on percentages of partner capital
accounts . In some cases, the approval of the general partner is required for redemptions.
Redemption notice periods range from two days to ninety days. There are no unfunded
commitments as of July 31, 2012 for these investments.
Fair values of assets and liabilities measured on a recurring basis at July 31, 2012 and 2011 is
follows:
Fair Value
July 31 , 2012
Assets:
Money market funds
Equity securities
Mutual funds - fixed income
funds
Mutual funds - index funds
Real estate investment trusts
Alternative investments in
hedge funds
Common collective trusts
invested in equity
securities
Limited partnerships invested
in equity securities
Total assets
Liabilities:
Derivatives
$
Fair Value Measurements At ReEorting Date Using
Quoted Prices in
Significant
Active Markets
Other
Significant
For Identical
Observable
Unobservable
Assets/Liabilities
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
9,245,793
542,689
7,518,812
$ 2,500,271
68,349,069
21,807,935
34,956,354
7,780,217
2,265,748
3,763,989
3,829,114
129,984
26,356,354
7,780,217
$ 6,745,522
542,689
948,039
6,570,773
49,803,607
21,677,951
8,600,000
14,716,348
2,265,748
3,763,989
62,763,510
65,186,938
$
1,987,046
24,282,612
32,992,735
29,770,775
45,799,854
17,400,038
4,033,981
20,248,631
$ 308.463.666
$49.153.759
$ 177.174.1 15
$ 82. 135 '792
14.035.472
$ ====
$
14.035.472
$ ===
$
Continued
47
20.
Fair Value
Fair Value Measurements At ReQorting Date Using
Quoted Prices in
Significant
Active Markets
Other
Significant
For Identical
Observable
Unobservable
Assets/Liabilities
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
July 31, 2011
Assets:
Money market funds
Equity securities
Mutual fundsfixed income
funds
Mutual funds- index funds
Real estate investment trusts
Alternative investments in
hedge funds
Common collective trusts
invested in equity
securities
Limited partnerships invested
in equity securities
Total assets
Liabilities:
Derivatives
$ 27,305 ,733
1,548,586
11,397 '793
$
8,676,156
34,523,470
24,372,611
16,071,255
6,011' 110
1,999,497
3,568,719
$ 27,305,733
1,548,586
2,721,637
3,225,451
3,892,642
16,071,255
6,011' 110
19,186,874
20,479,969
1,045,371
77,242,182
31,228,943
32,225,809
29,121,319
54,337,056
21 ,859,755
11 ,276,494
19,952,449
$ 83.044.668
$296.61 7 .027
$ 38.921.985
$ 174.650.374
$
$
$
Continued
48
12,111,145
1,999,497
3,568,719
61 ,347,128
4,606,557
$
4,606,557
$
20.
Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
July 31, 2010
Realized and
unrealized
gains (losses)
included
in other
nonoperating
revenue
Purchases
Sales
July 31, 2011
Realized and
unrealized
gains (losses)
included
in other
nonoperating
revenue
Purchases
Sales
July 31, 2012
Mutual
FundsFixed Income
Funds
Fair Value Measurements Using Significant
Unobservable In2uts (Level 3)
Common
Collective
Limited
Trusts
Partnerships
Alternative
Invested in
Invested in
Investments
Equity
Equity
in Hedge
Securities
Securities
Funds
$ 11,924,995
$ 22,369,996 $ 16,230,733
Total
$ 27,555,857 $ 78,081,581
142,627
6,244,197
( 6,200,674)
3,245,176
52,779
( 3,808,196)
3,509,216
212,500
2 ,389,067
7,431,742
( 8,255,347)
9,286,086
13,941,218
(18 ,264,217)
12, 111 ,145
21,859,755
19,952,449
29, 121 ,3 19
83,044,668
251,121
2,354,082
( 2,880,386)
2,348,932
197,250
( 2 ,250,000)
( 1,579,331)
$ 14.716.348
$ 17.400.038 $ 20.248.631
Continued
49
592,033
311,700
1,791,313
4,342,645
( 1,733,890) ( 5,563 ,221)
$ 29.770.775 $ 82,135,792
20.
Financial assets valued using Level 1 inputs are based on unadjusted quoted market prices
within active markets. Financial assets valued using Level 2 inputs are based primarily on
quoted prices for similar investments in active or inactive markets. Financial assets using
Level 3 inputs were primarily valued using management's assumptions about the assumptions
market participants would utilize in pricing the asset or liability. Valuation techniques
utilized to determine fair value are consistently applied.
21.
Related Party Transactions
The Corporation has contracts with Southwest Georgia Regional Medical Center and
Dorminy Medical Center to provide management services. The agreements automatically
renew for successive terms of one year unless either party provides written notice with intent
to terminate the agreement at least sixty days prior to termination. The contract with Dorminy
Medical Center is intended to serve as a bridge to a lease and transfer agreement allowing the
Corporation to lease the assets and operate the Hospital.
22.
Commitments and Contingencies
Compliance Plan
The healthcare industry has recently been subjected to increased scrutiny from governmental
agencies at both the federal and state level with respect to compliance with regulations.
Areas of noncompliance identified at the national level include Medicare and Medicaid,
Internal Revenue Service, and other regulations governing the healthcare industry . The
Corporation has implemented a compliance plan focusing on such issues. There can be no
assurance that the Corporation will not be subjected to future investigations with
accompanying monetary damages.
Continued
50
22.
Commitments and Contingencies, Continued
Health Care Reform
In recent years, there has been increasing pressure on Congress and some state legislatures to
control and reduce the cost of healthcare on the national or at the state level. In 2010,
legislation was enacted which included cost controls on hospitals, insurance market reforms,
delivery system reforms and various individual and business mandates among other
provisions. The costs of certain provisions will be funded in part by reductions in payments
by government programs, including Medicare and Medicaid. There can be no assurance that
these changes will not adversely affect the Corporation.
Litigation
The Corporation is involved in litigation and regulatory investigations arising in the course of
business. After consultation with legal counsel, management estimates that these matters will
be resolved without material adverse effect on the Corporation's future financial position or
results from operations.
23.
Electronic Health Record Incentive Payments
The Health Information Technology for Economic and Clinical Health Act (the HITECH Act)
was enacted into law on February 17, 2009 as part of the American Recovery and
Reinvestment Act of 2009 (ARRA). The HITECH Act includes provisions designed to
increase the use of Electronic Health Records (EHR) by both physicians and hospitals.
Beginning with federal fiscal year 2011 and extending through federal fiscal year 2016,
eligible hospitals participating in the Medicare and Medicaid programs are eligible for
reimbursement incentives based on successfully demonstrating meaningful use of its certified
EHR technology. Conversely, those hospitals that do not successfully demonstrate
meaningful use of EHR technology are subject to reductions in Medicare reimbursements
beginning in FY 2015. On July 13, 2010, the Department of Health and Human Services
(DHHS) released final meaningful use regulations. Meaningful use criteria are divided into
three distinct stages: I, II and III. The final rules specify the initial criteria for physicians
and eligible hospitals necessary to qualify for incentive payments; calculation of the incentive
payment amounts; payment adjustments under Medicare for covered professional services and
inpatient hospital services; eligible hospitals failing to demonstrate meaningful use of certified
EHR technology; and other program participation requirements.
Continued
51
23.
Electronic Health Record Incentive Payments, Continued
The final rule set the earliest interim payment date for the incentive payment at May 2011.
The first year of the Medicare portion of the program is defined as the federal government
fiscal year October 1, 2010 to September 30, 2011.
The Corporation recognizes income related to the Medicaid incentive payment using a grant
model based upon when it has determined that it is reasonably assured that the Corporation
will be meaningfully using EHR technology for the applicable period and the cost report
information is reasonably estimable.
As of July 31, 2012, the Corporation had not met the criteria for meaningful use for either
the Medicare or Medicaid programs. However, the Corporation is eligible and did receive
the first payment under the Medicaid program since it was able to demonstrate the pursuit of
meaningful use . During 2012, the Corporation received approximately $1,700,000 which is
reported in other revenue on the statement of operations and changes in net assets.
24.
Subsequent Event
The Authority is in the process of issuing 2012 Revenue Anticipation Certificates (Series
2012) in an aggregate principal amount not to exceed $125,000,000. Pursuant to the Master
Indenture, the Corporation will issue a promissory note in a principal amount equal to the
principal amount of the Series 2012 to the Authority. The proceeds will be used to fund
certain capital expenditures associated with properties owned by the Authority and leased to
the Corporation.
52
Member:
CERTIF IED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT ON
CONSOLIDATING INFORMATION
Board of Directors
Albany, Georgia
We have audited the consolidated fmancial statements of Phoebe Putney Health System, Inc. and
subsidiaries as of and for the years ended July 31, 2012 and 2011, and our report thereon dated
November 9, 2012, which expressed an unqualified opinion on those financial statements, appears on
page 1. Our audits were conducted for the purpose of forming an opinion on the consolidated
fmancial statements as a whole. The consolidating information included in this report on pages 54 to
59, inclusive, is presented for purposes of additional analysis of the consolidated fmancial statements
rather than to present the balance sheet and statement of excess revenues (expenses) of the individual
companies, and is not a required part of the consolidated financial statements . Accordingly, we do
not express an opinion on the financial position and results of operations of the individual companies.
The consolidating information is the responsibility of management and was derived from and relates
directly to the underlying accounting and other records used to prepare the consolidated financial
statements. Such information has been subjected to the auditing procedures applied in the audits of
the consolidated fmancial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to prepare
the consolidated fmancial statements or to the consolidated financial statements themselves, and other
additional procedures in accordance with auditing standards generally accepted in the United States
of America. In our opinion, the consolidating information is fairly st_ated in all material respects in
relation to the consolidated fmancial statements as a whole.
Oua bb-4- c:4- Tu.ektA, LLf
Albany, Georgia
November 9, 2012
53
P.O. Box 6
Suite 1250
Albany, Ga 31702 -0006
Atlanta, GA 30328
Tel. (229) 883-7878
Tel. (404) 220 -8494
Fax (229) 435-3152
Fax (229) 435-3152
CONSOLIDATING BALANCE SHEET
July 31, 2012
Phoebe Putney
Health
System, Inc.
Phoebe Putney
Memorial
Hospital, Inc.
Phoebe Putney
Health
Ventures, Inc.
$ 70,939,255
1,664,022
78,551,918
184,257,320
$ 295,755
ASSETS
Current assets:
Patient accounts receivable, net
Due from related parties
Supplies, at lower of cost
(first-in, first-out) or market
$ 13,807,011
303,900
7,120,264
6,545,126
3,401,266
428,663
14,110,911
352,479,171
724,418
237,277,883
16,145,491
Assets limited as to use:
Internally designated for capital improvements
Internally designated for self-insurance
Under bond indenture agreement
Investments
Less amount required to meet current
obligations
Assets limited as to use - long-term
1,664,022
237,277 ,883
17,809,513
1,664,022
237 ,277,883
16,145,491
42,982,556
278,233,195
4,936,522
Other assets:
Deferred financing cost
Goodwill
Other receivables
Other assets
4,330,000
214,886,360
22 ,515,582
3,029,453
11 ,340,057
3,006,703
11,655,907
1,361,534
Total other assets
241,731,942
29,032,120
1,361,534
$ 536.103.292
$ 675,889.977
$ 7,022.474
Total assets
54
CONSOLIDATING BALANCE SHEET, Continued
July 31, 2012
Phoebe
Physician
Group, Inc.
Phoebe Worth
Medical
Center, Inc.
Phoebe Sumter
Medical
Center, Inc.
Phoebe
Putney
Indemnity, LLC
$ 8,717,742
$2,955,604
$ 4,999,719
$ 10,059,873
9,833,597
2,889,868
8,037,754
Phoebe
Foundation, Inc.
$
929,930
Eliminations
$
Consolidated
$
112,704,889
1,664,022
99,313, 137
(184,257 ,320)
156,750
889,497
~. 1 66,511
1,027,962
151,544
2,721,815
8 750
48,801
19,579,301
6,153,766
16,648,785
10,068,623
978,731
1,465,980)
5,079,146
8,092,701
(185,723,300)
235,020,406
4,133,579
257,556,953
39,055,865
1,664,022
39,055,865
4,133,579
39,055,865
1,632,673
6,973,055
1,581,098
10,186,826
I ,632,673)
1,632,673
8,605,728
1,581,098
308,463,666
1,664,022
4 ,133,579
1,852,812
3,298,450
39,055,865
56,405,060
10,186,826
306,799,644
196,792
387,905 ,387
95,986
3,235,012
89,350
( 16,161 '744)
3,029,453
17,012,675
217,893,063
22,791,627
1,438,604
3,235,012
89,350
( 16,161,744)
260,726,818
$ 11,451,699
$(201.885.044)
$ 1 '190,452,255
1,342,618
$22.870.717
$ 9.452.21 6
$ 80,422,436
$49. 124,488
See accompanying auditor's report on consolidating information.
55
July 31, 2012
Phoebe Putney
Health
System, Inc.
Phoebe Putney
Memorial
Hospital, Inc.
Phoebe Putney
Health
Ventures, Inc.
$
$
LIABILITIES AND NET ASSETS
Short-term debt
Accounts payable
Accrued expenses
Due to related parties
Total liabilities
Net assets:
Unrestricted
Total net assets
1,833,086
3,114,077
4,715,000
100,000,000
15,927,169
25,309,608
4,947,163
145,951 ,777
$
157,789,053
4,317
196,3 14
200,631
916, 164
209,064 ,518
138,899,342
14,035,472
162,736,216
507,951 ,109
1,116,795
373,367,076
161,324,123
5,033,647
1,581 ,098
5,905,679
373,367,076
167,938 ,868
5,905,679
$ 536.103.292
$ 675.889.977
$ 7.022.474
56
July 31, 2012
Phoebe
Physician
Group, Inc.
Phoebe Worth
Medical
Center, Inc.
Phoebe Sumter
Medical
Center, Inc.
Phoebe
Putney
Indemnity, LLC
$
$
$
$
$
303,201
1,301 ,634
513,825
937,991
3,544,384
952,155
43,848
16,043,513
2, 118,660
5,434,530
43,848
8,488,056
8,684,854
8,379,193
1,278,317
14,765,196
Phoebe
Foundation, Inc.
Eliminations
$
$
94,339
94,339
1,465 ,980)
209,064,518
138,899,342
48,830,640
14,035,472
13,813,723
48,874,488
94 339
( 1,660,852)
1,351 ,298)
66,608,713
250,000
4 ,742,615
5,033,647
1,581,098
1,660,852)
( 1,351 ,298)
66,608,713
250,000
$ 80.422.436
$49.124.488
$ 9.452.216
173,368,481
(184,257 ,320)
10,803,5 14
$ 22,870,717
4,715,000
100,000 '000
20,378,420
48 ,275,061
1,465,980)
48,830,640
24,531,569
Consolidated
(185, 723,300)
584,198,453
(
(
(
9 ,546,999)
5 ,033,647)
1,581 ,098)
599,639,057
5,033,647
1,581,098
11,357,360
16,161 ,744)
606,253,802
$ 11,451,699
$(201,885.044)
$ 1.190.452,255
57
CONSOLIDATING STATEMENT OF EXCESS REVENUES (EXPENSES)
July 31 , 2012
Phoebe Putney
Health
System, Inc.
Phoebe Putney
Memorial
Hospital, Inc.
Phoebe Putney
Health
Ventures, Inc.
$
$ 510,591,675
13,321 ,929
$
35,376,751
35,376,751
523,913,604
5,435,948
Expenses:
Salaries and wages
Purchased services
Interest
10,254,191
1,369,344
4,007,695
5,616,613
1,737,721
8,823
726,454
164,089,902
45,718,683
166,699,263
56,901,202
25,425 ,813
5,660,312
43,996,875
1,105,248
357,204
3,549,043
246,211
174,933
Total expenses
23,720,841
508,492,050
5,432,639
Operating income
11,655,910
15,421,554
3,309
Other revenue
Total revenues, gains, and other support
Excess revenues (expenses)
( 9,570,822)
$
58
2,085,088
(
$
6,361 ,479)
9,060,075
5,435,948
(
12,446)
$(
9 137)
CONSOLIDATING STATEMENT OF EXCESS REVENUES (EXPENSES), Continued
July 31, 2012
Phoebe
Physician
Group, Inc.
Phoebe Worth
Medical
Center, Inc.
Phoebe Sumter
Medical
Center, Inc.
$ 75,316,643
49 ,098,302
$ 17,851,025
970 904
$ 62,114,256
2,527,890
124,414,945
18,821,929
64,642,146
84,752,854
10,823,147
9,443 ,528
5,850,892
298 ,353
10,898
13,277 ,698
7! 114,487
2,434,889
3,949,696
3,218,176
365,278
17,727,172
5,119,901
22,390, 177
7,381,054
4,710,901
2,683,217
11,385,934
124,457,370
19,765,743
68,715 ,139
15,891,694
383,373
(92,237 ,905)
674,620,944
( 4 ,072,993)
( 4,949,693)
640,268
461,271)
17,250,845
42 ,425)
943,814)
142,465
42,425
$
$(
943 ,814)
$( 3,930,528)
Phoebe
Putney
Indemnity, LLC
Phoebe
Foundation, Inc.
$
Eliminations
Consolidated
10,942,001
1,023,641
(92,699,176)
$ 665,873,599
25 ,998,190
10,942,001
1,023,641
(92,699,176)
691,871,789
(16,932,916)
268,110,938
65 ,823,168
176,964,380
53,258,051
32,714, 196
5,680,033
72,070,178
$
$
382,176
15 ,891 ,694
(49,348,892)
(25 ,956,097)
1,197
585,938
$( 4,3Q3,755)
5,316,706
$
640,268
$ 4,855,435
59
9,857,213)
$
7,393,632
Member:
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION
Board of Directors
Albany, Georgia
We have audited the consolidated fmancial statements of Phoebe Putney Health System, Inc. and
subsidiaries as of and for the years ended July 31 , 2012 and 2011 and our report thereon dated
November 9, 2012, which expressed an unqualified opinion on those fmancial statements, appears on
page 1. Our audits were conducted for the purpose of forming an opinion on the consolidated
fmancial statements as a whole. The information included in this report on pages 61 to 74,
inclusive, which is the responsibility of management, is presented for purposes of additional analysis
and is not a required part of the consolidated financial statements. Such information has not been
subjected to the auditing procedures applied in the audits of the consolidated fmancial statements,
and, accordingly, we do not express an opinion or provide any assurance on it.
~~Tt.c.e~, LlP
Albany, Georgia
November 9, 2012
60
P.O. Box 6
Suite 1250
Albany, Ga 31702-0006
Atlanta, GA 30328
Tel. (229) 883-7878
Tel. (404) 220 -8494
Fax (229) 435-3152
Fax (229) 435-3152
SERVICE TO THE COMMUNITY
Phoebe Putney Health System (PPHS) is a not-for-profit health care organization that was formed to
serve as the parent organization of a group of affiliated entities and, as such, its primary purpose is
to plan, coordinate, and direct the group and to provide centralized administrative and management
services to the exempt entities in the group. PPHS is recognized as exempt under Section 501(c)(3)
of the Internal Revenue Code and is classified as a public charity under Section 509(a)(3) of the
Code. Currently, the affiliated entities comprising the group include: Phoebe Putney Memorial
Hospital (PPMH), Phoebe Foundation (Foundation), Phoebe Putney Health Ventures (PPHV) ,
Phoebe Physician Group (PPG), Phoebe Putney Indemnity (PPI), Phoebe Sumter Medical Center
(PSMC) and Phoebe Worth Medical Center (PWMC).
As a tax exempt organization, PPHS has no stockholders or owners. All revenue after expenses is
reinvested in our mission to care for the citizens of the communities served by the System and its
affiliated entities and includes clinical care, health programs, state-of-the-art technology and facilities,
research and teaching and training of medical professionals to meet current and future needs.
PPHS operates as a charitable organization consistent with the requirements of Internal Revenue
Code Section 501(c)(3) and the "community benefit standard" ofiRS Revenue Ruling 69-545.
PPHS takes seriously its responsibility as the community's safety net hospital and has a strong record
of meeting and exceeding the charitable care and the organizational and operational standards
required for federal tax-exempt status. PPHS demonstrates a continued and expanding commitment
to meeting our mission by providing community benefits. A community benefit is a planned,
managed, organized, and measured approach to meeting identified community health needs,
requiring a partnership between the healthcare organization and the community to benefit residents
through programs and services that improve health status and quality of life.
Through its affiliated group of hospitals, PPHS improves the health and well-being of Southwest
Georgia through clinical services, education, research, and partnerships that build health capacity in
the community. Each hospital provides community benefits for every citizen in its service area as
well as for the medically underserved. The hospitals conduct community needs assessments and pay
close attention to the needs of low income and other vulnerable persons and the community at large.
The entities often work with community groups to identify needs , strengthen existing community
programs, and plan newly needed services. In addition to providing free and discounted services to
people who are uninsured and underinsured, the PPHS provides a wide-ranging array of community
benefit services designed to improve community and individual health and to increase access to
health care. PPMH's excellence in community benefit programs was recognized by the prestigious
Foster McGaw Prize awarded to the hospital in 2003 for its broad-based outreach in building
collaboratives that make measurable improvements in health status , expand access to care, and build
community capacity so that patients receive care closest to their own neighborhoods. Drawing on a
dynamic and flexible structure, the community benefit programs are designed to respond to assessed
needs and are focused on upstream prevention.
See independent auditor's report on supplemental information.
61
SERVICE TO THE COMMUNITY, Continued
As Southwest Georgia's leading provider of cost-effective, patient-centered health care, PPHS's
affiliated hospitals participate in the Medicare and Medicaid programs and are among the leading
providers of Medicaid services in Georgia.
The following table summarizes the amounts of charges foregone (i.e., contractual adjustments) and
estimates the losses incurred by PPHS due to inadequate payments by these programs and for
indigent/charity services. This table does not include discounts offered by PPHS under managed
care and other agreements:
Medicare
Medicaid
Indigent/charity
Charges
Foregone
Estimated
Unreimbursed Cost
$ 457,431,000
185,221 ,000
78,792,000
$ 91 ,357,000
37,345,000
34,500,000
$ 721.444.000
$ 163.202.000
The following is a summary of the community benefit activities and health improvement services
offered by the hospitals and illustrates the activities and donations during fiscal year 2012.
I.
Community Health Improvement Services
A.
Community Health Education
PPHS's affiliated hospitals provided health education services that reached 41,275
individuals in 2012 at a cost of $826,000. These services included the following free
classes and seminars:
•
•
•
•
•
•
•
•
•
Prepared childbirth classes
Refresher childbirth classes
Pregnancy classes
Breastfeeding classes
Lactation consulting
Baby care basics classes
Infant massage classes
Tours of post partum and labor and delivery
Special Tots classes
62
I.
Community Health Improvement Services, Continued
A.
Community Health Education, Continued
•
•
•
•
•
Maternity coordinator visits
Big Brother/Big Sister classes
Safe sitter classes
Golden Key Health Seminars
Support Groups
The hospitals are involved in many activities aimed at educating the community about
health-related topics. Examples of these activities are a monthly health information
newsletter distributed to 20,000 senior citizens at a cost of $46,000 and frequent
ongoing health seminars held at Phoebe Northwest free of charge and attracting
audiences ranging from 30 to 150 persons. The hospitals also produce public service
television campaigns called "Do It For Life," frequently featuring celebrity
personalities. These campaigns urge viewers to adopt healthy lifestyle changes and to
participate in screenings for cancer, heart disease, diabetes, and other diseases.
Videos on heart and stroke prevention and action, as well as videos on cancer
treatment care, are available to the general public and to patients and can be accessed
on the organization's web site. Many PPHS staff members also lend their time to
schools and civic organizations to speak on health issues.
Men and Women's Health Conferences
PPMH and PSMC hold Men's and Women's Annual Health Conferences that provide
health screenings for PSA, cholesterol, HIVI AID, blood pressure, hearing and vision,
health information, speakers, and fellowship to more than 4 ,400 attendees. The
health conference programs provide outreach, health screenings, educational
programs, and other health-related events. These programs target men and women at
risk of poor health status. The programs target men and women without a primary
care physician and who are uninsured, and men and women without knowledge of
recommended preventive health care services. The hospitals also run public service
television spots on breast cancer awareness and breast health, as well as
announcements on prostate cancer, heart health, and smoking cessation. The hospitals
also partner with local media outlets to raise awareness of cancer and heart disease
through special promotions. The following are examples of Men's Health Initiative
programs:
63
I.
A.
Men and Women's Health Conferences, Continued
•
Men on the Move- A faith based initiative, which began in 2001 to solicit
support of men around the issues affecting men's health. It began by contacting
area pastors and informing them of our interest to bring a men's health and
wellness message to their churches and to engage the men in health decision
making that ultimately leads to greater community capacity. Twenty churches of
different sizes and denominations participate, with no less than twenty-five men
per church taking active roles for the initiative. These participants have become
our membership base of Men's Health Advocates that we call "Men on the
Move." These are the men who volunteer their time in assisting in outreach and
program logistics .
•
Men at Work- This event has taken place for the last six years, serving the city
of Albany, Dougherty County, and the Water, Gas and Light male employees .
PPMH partners with the American Cancer Society, Dr. Ajayi/Southwest GA
Urology Clinic, the City/County and Sub-Way, who supplies food for free . This
event is held in Albany's downtown Government Center and the men are allowed
a liberal leave so that they can get their PSA screenings, visit our various
educational booths, and have lunch with the doctor. More than 200 men are
served at each event.
•
Seminars/Screenings - These programs are held twice a month at churches and
other community locations, including the Phoebe Fitness Center. These
educational/awareness events cover topics such as erectile dysfunction, heart
health, nutrition, and fitness . They may also include physician-led workshops and
free screenings which include cholesterol, HIV/AID , blood pressure, hearing, and
vision.
•
Men's Prostate Health Clinic- This annual event is in its thirteenth year. Men
are given a digital rectal exam (DRE) . DRE's are performed by our Radiation
Oncologist and physicians from Albany Urology, who volunteer their time. 288
men were reached at this event in 2012.
64
I.
A.
Golden Key
This is a membership organization for people age 50 and older. With over 23,000
members, Golden Key offers programs that encourage healthy lifestyles including the
privilege of walking at the PPMH's Physical Medicine complex. Its members receive
a monthly newsletter (Key Notes) that discusses health information, upcoming
seminars, and available classes and outings. In 2012, the unreimbursed cost was
$ 167,000.
Network of Trust
This is a nationally recognized program aimed at reducing repeat pregnancies among
teen mothers. The program also offers support to remain in school and provides
parenting skills. Because Dougherty County has one of the state's highest fatherless
rates, this program also includes a teen father program along with other teenaged
children programs. Network of Trust enrolled 319 teen parents during the 2011/2012
school year at a cost of $250,000.
B.
Community Based Clinical Services
Flu Shots
PPHS through its affiliated group provides free flu shots to volunteers and employees'
family members. In 2012, the organization administered 612 flu shots at an
unreimbursed cost of $11,000.
School Nurse Program
PPMH and PSMC provide nurses in twenty elementary schools, eight middle schools,
and seven high schools in Dougherty and Sumter Counties with a goal of creating
access to care for students, assessing the health care status of each population
represented, and effectively establishing referrals for all health care needs. Nurses
also conducted the Eighth Grade Health Fairs. During the 201112012 school year, the
school nurse program covered 90,000 student visits. These programs operated at a
loss of $1,346,000 in 2012.
65
I.
C.
Health Care Support Services
New Foundations
PPMH offers New Foundation Breast Forms and Fashion Boutique. New
Foundations caters to the physical and mental well-being of women and their families.
They provide one-on-one post mastectomy consultation to help women overcome their
anxieties and feel better about themselves. They carry a large variety of prosthesis
and also have a wide selection of clothing. They conduct support groups and help
patients with breast cancer issues. This department saw 1,296 patients and operated at
an unreimbursed cost in 2012 of $13,000.
Lights o[Love Vans
Lights of Love, supported in partnership with the Junior Woman's Club of Albany,
donated vans to PPMH to transport cancer patients to and from the hospital for their
treatments. In 2012, Phoebe Lights of Love provided 143 patient transports at a cost
of $104,000.
Phoebe Care Representatives
Phoebe Care Representatives assist patients and citizens with pre-qualifying for free or
reduced-cost medical care before medical attention is needed by applying for the
Phoebe Care Card. This is accepted at the PPMH as well as at hospital-affiliated
specialty clinics. To ensure this program is accessible and understood by its intended
beneficiaries, the PPMH employs Phoebe Care Representatives to assist patients in
various ways. Their services are not limited to the Phoebe Care Card and include
helping with applications and/or gaining assistance from medical assistance programs
and providing information on how to access assistance with medicine, food, clothing,
shelter, medical transportation, and more.
The Phoebe Cares Department assisted 6,263 patients during the year and operated at
a net unreimbursed cost of $410,000 in 2012. Patients who qualify for the Phoebe
Care Card are provided millions of dollars of uncompensated care annually , and the
total amount of community benefit provided by the program is included in the amount
of charity care reported in PPHS's financial statements.
66
I.
C.
Health Care Support Services, Continued
Phoebe Care Representatives, Continued
•
Indigent Financial Assistance
Patients whose income is below 125 % of the Federal Poverty Levels are classified
as indigent and receive care at no cost.
•
Charity Financial Assistance
Patients whose income level is between 126 % - 200% of the Federal Poverty
Levels will be classified as charity. These patients will be responsible for a
percentage of PPMH charges. This percentage will be based on calculations using
the Federal Poverty Levels that are published in the "Federal Register" each year.
If it is determined the patient responsibility will be an undue hardship on the
patient/guarantor, these cases will be reviewed on an individual basis with the
Phoebe Cares Supervisor for possible catastrophic charity based on sliding scale
guidelines .
•
Catastrophic Financial Assistance
Patients whose income exceeds 200 % of the Federal Poverty Levels and whose
hospital charges exceed 25 % of their annual income, resulting in excessive
hardship, are eligible for a discount up to 75% of the patient balance. The patient
may pay the remaining balance over 24 months.
II.
Health Professions Education
PPHS recognizes that to continuously improve the company's long-term value to its
community and its customers, to encourage life-long learning among employees, and to
achieve a world-class employer status, it is in PPHS's best interest to provide opportunities
that will assist eligible employees in pursuing formal , healthcare related educational
opportunities. PPHS also provides non-employees financial support in pursuing healthcare
related degrees. In fiscal year 2012, PPHS provided $1,312,000 in clinical supervision and
training of nursing students, and an additional $348,000 in clinical supervision and training to
pharmacy, pharmacy techs, and other allied health professionals.
67
III.
Subsidized Health Services
A.
Hospital Outpatient Services
PPHS has a strong commitment to primary care for the Southwest Georgia region so
that care can be delivered closest to where people live. Family medical centers in the
surrounding counties are a network of care that serves the entire family for those who
reside outside of Albany. In 2012, the rural clinics operated at a net loss of $39,000,
and the Pelham clinic operated at a net loss of $121,000.
Convenient Cares
Phoebe's Convenient Care provides treatment for minor injuries and ailments in a
more timely and appropriate fashion and at a more reasonable cost than an emergency
center. In 2012, the clinics operated at a net loss of $1,212,000.
Phoebe Specialty Clinics
•
Phoebe Gastroenterology Associates has been a part of providing exceptional
patient care for more than 30 years and treats virtually every kind of
gastrointestinal related healthcare problem. In 2012, the clinic incurred a net loss
of $421,000.
•
PPHS operates a specialty clinic encompassing Endocrinology, Rheumatology,
and Physiatry. The clinic offers medical care on a referral basis to inpatients and
outpatients with endocrine or rheumatoid problems or with physical medicine or
rehabilitation needs. The clinic operated at a net loss of $351,000 in 2012.
•
PPHS offers an Infectious Disease Clinic. This clinic is primarily directed at
providing treatment to those who have chronic and acute infectious diseases. In
2012, this clinic operated at a net loss of$117,000.
•
PPHS operates neurosurgery and neurology practices that provide two
neurosurgeons and two neurologists to the community, improving access to care in
several settings, including trauma care in the emergency department, and
community health forums. These departments operated at a net loss of $931,000.
68
III.
Subsidized Health Services, Continued
A.
Hospital Outpatient Services, Continued
Phoebe Specialty Clinics, Continued
•
PPHS provides palliative care to patients in Southwest Georgia with a limited life
expectancy. In 2012, the service operated at a net loss of $79,000.
•
Maternal/Fetal Medicine program is for high risk mothers and pregnant women
who need specialized care. It serves this perinatal region. In 2012, this clinic
operated at a net loss of $48,000.
•
PPHS operates a Surgical Oncology Department in its Cancer Center. This
practice surgically treats and manages cancers primarily of the esophagus,
stomach, liver, pancreas, colon, breast and skin, and soft tissues. It operated at a
loss of $155,000.
•
Lee QuickCare Clinic provides walk-in treatment for common illnesses and
conditions after hours , 6 p.m. to 10 p.m. Mondays through Fridays. The staff
serves non-urgent patients and can prescribe medications when indicated. The
clinic operated at a net loss of $60,000.
•
PPHS operates a comprehensive cardiac program which performs open heart,
thoracic and vascular procedures, including the region's only electrophysiology
and peripheral vascular intervention procedures as well as community angio
screenings. This group operated at a net loss of $1,132,000.
•
PPHS operates a special senior clinic at the Camilla Senior Center , set up for this
population to have a comfortable atmosphere in which to access physician care,
including a kitchen area and gathering places. The Center operated at a net loss of
$11,000 for 2012.
•
Sumter Orthopedic provides the sole orthopedic service in the county. The
practice operated at a net loss of $188,000 for 2012.
•
The Sumter Specialty Clinic provides cardiology and neurology services to the
patients in its community. The clinic operated at a loss of $155,000.
69
III.
A.
Hospital Outpatient Services, Continued
Phoebe Specialty Clinics, Continued
•
Sumter Ob/Gyn Clinic was opened when a tornado destroyed Sumter Regional
Hospital in 2007 to provide access to obstetric and gynecological services to
patients in its surrounding area. This clinic operated at a net loss of $223 ,000 in
2012.
•
Sumter Surgery provides a wide-range of general surgery procedures to the area.
The clinic showed a net loss of $136,000.
•
Sumter Emergency Room operated at a net loss of $49,000.
•
PPHS operates a Wound Care and Hyberbaric Center with two satellite clinics in
Sylvester and Americus, Georgia for advanced wound care treatments . The
Center provides treatment for chronic wounds that have resisted healing and
hyperbaric oxygen therapy. The Center operated at a net loss of $30,000.
•
The Behavioral Health Clinic at PPMH provides treatment for adults and
adolescents with addictive diseases and/or psychiatric disorders . In 2012, this
clinic operated at a net loss of $450,000.
Residency Program
The Southwest Georgia Family Medicine Residency Program is an award winning
facility continuously addressing the shortage of health care professionals in the region.
Their primary mission is to train family physicians to practice in rural Southwest
Georgia.
Established in 1993 by the Georgia General Assembly, this program offers a rich
opportunity for physicians to develop as strong clinicians capable of delivering highquality primary care in any setting. The need for medical services in this rural region
is great. The region has high incidences of cancer, heart attack, stroke, and other
diseases, and the need for medical and outreach services are tremendous. The
program has successfully diverted persons without access from costly emergency
rooms to appropriate primary care settings. The program reported a net loss of
$902,000 in 2012.
70
III.
B.
Women's and Children's Services
PPHS supports midwifery services provided by Albany Area Primary Health Care (a
federally qualified health clinic) to women without access to pre-natal care. The
program is a needed intervention and impacts mother and baby health, including infant
mortality rates, by reaching women who otherwise would arrive at the hospital
without adequate prenatal care. PPHS delivers approximately 3,000 babies annually;
more than 68 % are Medicaid recipients. PPHS provided $205,000 to the midwifery
services in the last fiscal year.
C.
Other Subsidized Services
Inmate Care
PPHS provides inpatient care to persons in jail for Dougherty County . In 2012,
PPHS provided $780,000 of unreimbursed medical treatment to 298 inmates.
Indigent Drug Pharmacy
Indigent Drug Pharmacy provides medication upon discharge to patients that are either
indigent or uninsured . In 2012, the pharmacy assisted 1,584 patients at a cost of
$257,000.
IV.
Clinical Research
PPMH offers clinical trials to cancer patients who are residents of Southwest Georgia. In
2012, 116 patients elected to participate at an estimated cost of $735 ,000. PPMH is a
regional site for the collection of tissue for the statewide Tumor, Tissue and Serum
Biorepository.
71
V.
Financial and In-Kind Support
In 2012, PPHS provided $612,000 in cash donations and in-kind support to non-profit
organizations in Southwest Georgia. Listed are some highlights:
VI.
•
The Southwest Georgia Cancer Coalition received $188,000 for staff support and various
projects.
•
Installing Health Teacher into classrooms throughout Southwest Georgia at a cost of
$62,000.
•
Graceway Recovery for Women received a cash donation of $5,000 to partially fund a
van purchase.
•
100 Black Men of Albany, GA received a $5,000 donation for the robotics program.
•
Albany Marathon received a $20,000 donation to raise funds for hospice services.
•
A $50,000 donation to Move the Mountain for a national development center in Albany
with the goal of reducing poverty.
•
In-kind support of foregone rent to 17 non-profit organizations at an estimated cost of
$174,000.
•
PWMC gave $46,000 to the Worth County Health Department for heart health and
diabetes .
Comrnnnity Building Activities
A.
Economic Development
As a corporate citizen, PPHS is involved in various economic development activities
throughout the year. In 2012, PPHS contributed $104 ,000 to various economic
development initiatives in the community.
72
VII.
Community Benefit Obligations
PPHS incurred $213,000 in support staff costs to support its community benefit efforts.
Summary
2012
Community Health Improvement Services:
Community Health Education
Community Based Clinical Services
Healthcare Support Services
Total community health improvement services
Health Professions Education:
Nurses/nursing students
Other health professional education
$
826,000
1,357,000
527,000
2,710,000
1,312,000
348,000
Total health professions education
Subsidized Health Services:
Hospital outpatient services
Women's and children's services
Behavioral health services
Other subsidized health services
1,660,000
6,360,000
205,000
450,000
1,037,000
Total subsidized health services
8,052,000
Research:
Clinical research
735,000
Total research
735!000
73
VII.
Community Benefit Obligations, Continued
Summary, Continued
2012
Financial and In-Kind Support:
Cash donations
ln-kind donations
$
Total fmancial and in-kind support
Community Building Activities:
Economic development activities
367,000
245,000
612,000
104,000
Total community building activities
Community Benefit Operations:
Dedicated staff and other resources
104,000
213,000
Total community benefit operations
Other:
Traditional charity care - estimated unreimbursed
cost of charity services
Unpaid cost of Medicare services - estimated
unreimbursed cost of Medicare services
Unpaid cost of Medicaid services - estimated
unreimbursed cost of Medicaid services
Total other
2132000
34,500,000
9 1,357,000
37,345,000
16322022000
Total summary
$ 177.288,000
This report has been prepared in accordance with the Community Benefit reporting guidelines
established by Catholic Health Association and VHA. The Internal Revenue Service's
requirements for reporting Community Benefits are different than the guidelines under which
this report has been prepared.
74
APPENDIX C
DEFINITIONS AND SUMMARIES OF PRINCIPAL DOCUMENTS
Brief description of the Master Indenture, the Series 2010A Supplement to Master Indenture, the Indenture
and the Agreement are included in this Appendix C to this Official Statement. Such descriptions do not purport to
be comprehensive or definitive. All references herein to the Master Indenture, the Indenture and the Agreement are
qualified in their entirety by reference to each such documents. All references to the Bonds are qualified in their
entirety by reference to the definitive forms thereof and the information with respect thereto included in the
Indenture.
DEFINITIONS OF CERTAIN TERMS
The following words and terms are used in the Master Indenture, the Indenture and the Agreement with the
following meanings. To the extent not defined in this Official Statement, capitalized terms are used herein with the
meanings give them in the Master Indenture, the Indenture and the Agreement.:
"Accelerable Instrument" means any Obligation or any mortgage, indenture, loan agreement or other
instrument under which there has been issued or incurred, or by which there is secured, any Indebtedness evidenced
by an Obligation (including the Master Indenture), which Obligation or instrument provides that, upon the
occurrence of an event of default under such Obligation or instrument, its holder may request that the Master Trustee
declare such Obligation or Indebtedness due and payable before the date on which it would otherwise become due
and payable.
"Accountant" means a certified public accountant or firm of certified public accountants selected (i) by
any Member of the Combined Group for the purpose of examining and reporting on or passing on questions relating
to the financial statements of such Member or (ii) by the Obligated Group Agent for the purpose of examining and
reporting on or passing on questions relating to the financial statements of two or more Members of the Combined
Group or the entire Combined Group, and, in the good faith opinion of the person making the appointment, has a
favorable reputation for skill and experience in performing similar services in respect of entities of a comparable
size and nature.
"Act" means the Hospital Authorities Law, O.C.G.A. Section 31-7-70, et seq., as amended.
"Additional Indebtedness" means Indebtedness that any Member incurs after the issuance of the Initial
Obligation.
"Additional Obligations" means any evidence of Indebtedness issued after the issuance of the Initial
Obligation that a Member is authorized to issue under the Master Indenture and the Master Trustee has
authenticated.
"Affiliate" means a corporation, partnership, joint venture, association, business trust or similar entity (i)
that controls, is controlled by or is under common control with, directly or indirectly, a Member; or (ii) a majority of
the members of the Directing Body of which are members of the Directing Body of a Member. In this definition,
control means with respect to (a) a stock corporation, the ownership, directly or indirectly, of more than 50% of the
securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders
of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors of such
corporation, (b) a nonprofit, non-stock corporation, having the power to elect or appoint, directly or indirectly, a
majority of the members of the Directing Body of such corporation; or (c) any other entity, the power to direct the
management of such entity through the ownership of at least a majority of its voting securities or the right to
designate or elect at least a majority of the members of its Directing Body, by contract or otherwise. In this
definition, "Directing Body" means with respect to (a) a stock corporation, such corporation's board of directors and
the owners, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act
of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies,
entitled to elect a majority of the corporation's directors (both of which groups will be considered a Directing Body);
C-1
(b) a nonprofit, non-stock corporation, such corporation's members if the members have complete discretion to elect
the corporation's directors, or the corporation's directors if the corporation's members do not have such discretion;
and (c) any other entity, its governing board or body. All references in this definition to directors and members will
be deemed to include all Persons performing the function of directors or members however denominated.
"Agreement" means the Loan Agreement, dated as of December 1, 2012, between the Issuer and the
Hospital, and any amendments and supplements thereto.
"Balloon Indebtedness" means Long-Term Indebtedness, 25% or more of the original principal amount of
which matures during any consecutive twelve-month period, if such maturing principal amount is not required to be
amortized below such percentage by mandatory redemption or prepayment before such twelve-month period.
Balloon Indebtedness does not include Indebtedness that otherwise would be classified under the Master Indenture
as Put Indebtedness.
"Bond Counsel" means a firm of nationally recognized standing in the field of municipal finance law
whose opinions are generally accepted by purchasers of public obligations and who is acceptable to the Trustee.
"Bond Fund" means the fund created in the Indenture and more fully described herein under “The
Indenture–Revenues and Funds.”
"Bonds" means Hospital Authority of Albany-Dougherty County, Georgia Revenue Anticipation
Certificates (Phoebe Putney Memorial Hospital), Series 2012 issued by the Issuer pursuant to the Indenture.
"Book Entry System" means the system maintained by the Securities Depository more fully described in
the Indenture.
"Business Day" means any day other than (a) a Saturday or Sunday, (b) a day on which the Trustee is
required or permitted by law to close, and (c) a day on which the New York Stock Exchange is closed.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, including, when
appropriate, the statutory predecessor thereof, or any applicable corresponding provisions of any future laws of the
United States of America relating to federal income taxation, and except as otherwise provided herein or required by
the context hereof, includes interpretations thereof contained or set forth in the applicable regulations of the
Department of the Treasury (including applicable final or temporary regulations and also including regulations
issued pursuant to the statutory predecessor of the Code, the applicable rulings of the Internal Revenue Service
(including published Revenue Rulings and private letter rulings), and applicable court decisions).
"Combined Group" means the Obligated Group and all Restricted Affiliates.
"Commitment Indebtedness" means the obligation of a Member to repay amounts disbursed under a
commitment from a financial institution to refinance or purchase when due, when tendered or when required to be
purchased (i) other Indebtedness of such Member, or (ii) Indebtedness of a Person who is not a Member, which
Indebtedness is guaranteed by a Guaranty of such Member or secured by or payable from amounts paid on
Indebtedness of such Member, in either case which Indebtedness or Guaranty of such Member was incurred under
the provisions described under "The Master Indenture—Permitted Additional Indebtedness" below, and the
obligation of any Member to pay interest payable on amounts disbursed for such purposes, plus any fees, costs or
expenses payable to such financial institution for, under or in connection with such commitment.
"Completion Indebtedness" means any Long-Term Indebtedness (i) incurred to finance the completion of
the acquisition, construction, remodeling, renovation or equipping of a Facility for which Long-Term Indebtedness
for borrowed money has been incurred and (ii) in a principal amount not in excess of the amount required to provide
a completed and equipped Facility of substantially the same type and scope contemplated at the time the prior LongTerm Indebtedness was originally incurred, to provide for Capitalized Interest during the construction period, to
provide any reserve fund relating to such Completion Indebtedness and to pay the costs and expenses of issuing such
Completion Indebtedness.
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"Consultant" means a professional consulting or banking firm selected by the Obligated Group Agent,
which firm (i) has the skill and experience necessary to render the particular report required and a favorable and
nationally recognized reputation for such skill and experience satisfactory to the Master Trustee in its reasonable
discretion and (ii) is not an Affiliate of any Member of the Obligated Group or any of its Affiliates.
"Continuing Disclosure Agreement" means the Disclosure Dissemination Agent Agreement dated as of
December 1, 2012 between the Hospital and Digital Assurance Certification, L.L.C. with respect to the Bonds.
"Cost" or "Costs" means and includes all items permitted to be financed under the provisions of the Code
and the Act.
"Cross Guarantee" means the obligations of each Obligated Group Member pursuant to the provisions
described under "The Master Indenture–Cross-Guaranties" below.
"Cross-over Refunding Indebtedness" means Indebtedness of a Person issued to refund other
Indebtedness of such Person if the proceeds of such Cross-over Refunding Indebtedness are irrevocably deposited in
escrow to secure the payment on the applicable Cross-over Date of the Cross-over Refunded Indebtedness and
earnings on such escrow deposit are required to be applied to pay interest or principal on either or both of such
Cross-over Refunding Indebtedness or such Cross-over Refunded Indebtedness until the Cross-over Date.
"Days-Cash-on-Hand" means, for each day, the amount calculated by dividing (i) the Obligated Group's
Unrestricted cash, cash equivalents and investments, determined in accordance with generally accepted accounting
principles, as shown on the Obligated Group's most recent Financial Statements, excluding such cash, cash
equivalents and investments representing borrowed moneys payable in one year or less, any demand oblgiation or
borrowerd funds that are entrusted with a lender (including in such exclusion cash, cash equivalents and investments
held by a Related Bond Trustee under a Related Bond Indenture), by (ii) Daily Cash Expenses.
"Debt Service Requirements" means the aggregate of the principal (whether at maturity, by mandatory
redemption or mandatory prepayment or acceleration) of and interest on specified outstanding Indebtedness of a
Person or a group of Persons payable during the calculation period; provided that (i) the amount of such payments
for a future period will be calculated in accordance with the assumptions described under "The Master Indenture—
Computation Assumptions" below, (ii) Capitalized Interest on the specified outstanding Indebtedness will be
excluded from the determination of the Debt Service Requirements, and (iii) principal and interest of Indebtedness
will be excluded from the determination of Debt Service Requirements to the extent that amounts are or were on
deposit in an irrevocable escrow or are or were derived from the proceeds of other Indebtedness permitted under the
Master Indenture and such amounts (including, where appropriate, the earnings or other increment to accrue
thereon) were or must be applied to pay such principal and interest and such amounts were or are sufficient to pay
such principal and interest.
"Default" or “Event of Default” means, (i) under the Master Indenture, any Default or Event of Default
more fully described herein under "The Master Indenture–Defaults and Remedies," (ii) under under the Series
2010A Supplement to Master Indenture, any Default or Event of Default more fully described herein under "Seriesx
2010A Supplement to Master Indenture–Events of Default," (iii) under under the Indenture, any Default or Event of
Default more fully described herein under "The Indenture–Defaults and Remedies" and, (iv) under the Agreement,
any Default or Event of Default more fully described herein under "The Agreement–Defaults and Remedies."
"Derivative Agreement" means, without limitation: (i) any contract known as or referred to or which
performs the function of an interest rate swap agreement, currency swap agreement, forward payment conversion
agreement or futures contract; (ii) any contract providing for payments based on levels of, or changes or differences
in, interest rates, currency exchange rates, or stock or other indices; (iii) any contract to exchange cash flows or
payments or series of payments; (iv) any type of contract called, or designed to perform the function of, interest rate
floors or caps, options, puts or calls, to hedge or minimize any type of financial risk, including, without limitation,
payment, currency, rate or other financial risk; and (v) any other type of contract or arrangement relating to bonds,
certificates or other Indebtedness issued for the benefit of or on behalf of any Member of the Obligated Group that
the Member of the Obligated Group entering into such contract or arrangement determines is to be used, or is
intended to be used, to manage or reduce the cost of Indebtedness, to convert any element of Indebtedness from one
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form to another, to maximize or increase investment return, to minimize investment risk or to protect against any
type of financial risk or uncertainty.
"ERISA" means the Employee Retirement Income Security Act of 1974, as now in effect or as hereinafter
amended.
"ERISA Affiliate" means the Hospital, any of its Affiliates and any other Person who is a member of the
same controlled group as, or is treated as a single employer with, the Hospital or any such Affiliate under section
414(b), (c), (m) or (o) of the Code.
"ERISA Event" means
(i)
a Reportable Event described in section 4043(b) of ERISA and the regulations issued thereunder
with respect to any Title IV Plan which is not a Multiemployer Plan (other than such a Reportable Event for which
the PBGC has waived the 30-day notice requirement under such regulations);
(ii)
the filing of a notice of intent to terminate a Title IV Plan which is not a Multiemployer Plan under
a distress termination under section 4041(c) of ERISA or the treatment of an amendment to a Title IV Plan which is
not a Multiemployer Plan as a distress termination under section 4041(c) of ERISA;
(iii)
the institution of proceedings to terminate a Title IV Plan which is not a Multiemployer Plan by
the PBGC or any other event or condition which might reasonably be expected to constitute grounds under section
4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan which is not a
Multiemployer Plan or the imposition of any liability under Title IV of ERISA (other than for the payment of PBGC
insurance premiums in the ordinary course that are not yet due);
(iv)
an event requiring notification under section 4041(c)(3)(C) of ERISA with respect to a Title IV
Plan which is not a Multiemployer Plan;
(v)
the withdrawal of any ERISA Affiliate from a Title IV Plan during a plan year in which it was a
“substantial employer” as defined in section 4001(a)(2) of ERISA;
(vi)
with respect to any Title IV Plan which is not a Multiemployer Plan, the cessation of operations by
an ERISA Affiliate at a facility in the circumstances described in section 4062(e) of ERISA;
(vii)
the adoption of an amendment to a Title IV Plan which is not a Multiemployer Plan requiring the
provision of security to such Plan pursuant to section 307 of ERISA;
(viii)
the failure of any ERISA Affiliate to make a payment to a Pension Plan which is not a
Multiemployer Plan required under section 412 of the Code or section 302 of ERISA;
(ix)
a Pension Plan which is not a Multiemployer Plan having an “accumulated funding deficiency” (as
defined in section 412 of the Code and section 302 of ERISA) whether or not waived;
(x)
the application for, or receipt of, a funding waiver from the Internal Revenue Service with respect
to any Pension Plan which is not a Multiemployer Plan;
(xi)
the failure of a Pension Plan which is not a Multiemployer Plan which is intended to be qualified
under section 401(a) of the Code to be so qualified or the failure of its related trust to be exempt under section
501(a) of the Code;
(xii)
the occurrence of a non-exempt “prohibited transaction”, as such term is defined in section 4975
of the Code and section 406 of ERISA, or the participation in a breach of fiduciary responsibility or other violation
of Part 4 of Title I of ERISA (as described in section 502(l) of ERISA), which would subject any ERISA Affiliate
(after giving effect to any exemption) to the tax or penalty on prohibited transactions imposed by section 4975 of the
Code or section 502 of ERISA or any other liability; or
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(xiii)
a withdrawal or partial withdrawal by an ERISA Affiliate from a Multiemployer Plan, or any
ERISA Affiliate incurring any withdrawal liability with respect to a Multiemployer Plan pursuant to section 4201 or
4204 of ERISA, or notification of any ERISA Affiliate by the sponsor of any Multiemployer Plan that such plan is
in reorganization, insolvent or being terminated.
"Escrow Obligations" means, (i) with respect to any Obligation that secures a series of Related Bonds, the
Obligations permitted to be used to defease such series of Related Bonds under the Related Bond Indenture, or (ii) in
all other cases (1) noncallable United States Government Obligations; (2) noncallable obligations of any agency or
instrumentality of the United States Government; (3) noncallable certificates of deposit issued by a bank or trust
company that are (x) fully insured by the Federal Deposit Insurance Corporation or similar corporation chartered by
the United States or (y) secured by a pledge of any noncallable United States Government Obligations having an
aggregate market value, exclusive of accrued interest, equal at least to the principal amount of the certificates so
secured, which security is held in a custody account by a custodian satisfactory to the Master Trustee; (4) (x)
noncallable evidences of a direct ownership in future interest or principal payments on obligations of the type
described in (1) above, which obligations are held in a custody account by a custodian satisfactory to the Master
Trustee and (y) noncallable obligations issued by any state of the United States or any of its political subdivisions,
public instrumentalities or public authorities, which obligations are fully secured by and payable solely from
obligations of the type described in (1) above; and (5) pre-refunded municipal obligations (defined as bonds or other
obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit
of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable
instructions have been given by the obligor to call on the date specified in the notice) (x) which are rated, based
upon an irrevocable escrow account or fund (the "escrow") in the highest rating category of Moody's, S&P or Fitch,
or (y) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow
consisting only of cash or obligations described in (1) above, which escrow may be applied only to the payment of
such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity
date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as
appropriate, and (ii) which escrow is sufficient, as verified by an Accountant, to pay principal of and interest and
redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or
dates or the specified redemption date or dates specified in the irrevocable instructions referred to above, as
appropriate.
"Excluded Property" means (i) any assets of "employee pension benefit plans" as defined in the
Employee Retirement Income Security Act of 1974, as amended, (ii) the right, title and interest in and to the real
estate described in Exhibit C, as amended as provided herein from time to time, and all improvements, fixtures,
tangible personal property and equipment located thereon and used in connection therewith, and (iii) the right, title
and interest to the other property, if any, described in and exhibit to the Master Indenture.
"Existing Certificates" means those revenue anticipation certificate and bonds which were outstanding on
the date of execution and delivery of the Master Indenture.
"Expenses" means the aggregate of all expenses calculated under generally accepted accounting
principles, including without limitation any taxes, incurred by a Person or group of Persons during the calculation
period, minus (i) interest on Long-Term Indebtedness and (ii) depreciation and amortization; provided that no such
determination will take into account (1) any gain or loss resulting from either the extinguishment of Indebtedness or
the sale, exchange or other disposition of capital assets not made in the ordinary course of business, (2) any
unrealized gains and losses on investments or (3) any nonrecurring items of an extraordinary nature which do not
involve the receipt, expenditure or transfer of assets.
"Facilities" means all land, leasehold interests and buildings and all fixtures and equipment (as defined in
the Uniform Commercial Code or equivalent statute in effect in the state where such fixtures or equipment are
located) of a Person other than Excluded Property of such Person.
"Financial Statements" means the audited consolidated or combined financial statements covering the
Obligated Group's operations for the applicable Fiscal Year that are prepared under generally accepted accounting
principles and certified by an Accountant satisfactory to the Master Trustee; provided that if the Members of the
Obligated Group consist only of the Hospital and some or all of the Affiliates of the Hospital, the audited
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consolidated or combined financial statements may cover the Hospital and all of its consolidated or combined
Affiliates (which must include all of the Affiliates of the Hospital in the Obligated Group) and may contain only
certain summarized consolidated or combined financial information concerning the Obligated Group.
"Fiscal Year" means any twelve-month period beginning on August 1 of any calendar year and ending on
July 31 of such calendar year or such other consecutive twelve-month period that the Obligated Group Agent may
select as the fiscal year for the Members.
"Fitch" means Fitch, Inc., its successors and their assigns, and, if such corporation is dissolved or
liquidated or no longer performs the functions of a securities rating agency, "Fitch" will be deemed to refer to any
other nationally recognized securities rating agency designated by the Hospital by written notice to the Trustee.
"Governing Body" means, with respect to a corporation, the board of directors, board of trustees or
similar group in which the right to exercise the powers of corporate directors or trustees is vested.
"Government Obligations" means direct general obligations of, or obligations the payment of the
principal of and interest on which are unconditionally guaranteed as to full and timely payment by, the United States
of America, which obligations are noncallable.
"Governmental Unit" means a state, a political subdivision or instrumentality of the foregoing within the
meaning of Section 141(b)(6) of the Code.
"Gross Receipts" means all revenues, income, receipts and money received in any period by or on behalf
of any Member (other than such amounts (i) that are derived from Excluded Property or Property, Plant or
Equipment that secures Non-Recourse Indebtedness or (ii) that are proceeds of Indebtedness), including without
limitation (i) revenues derived from its operations, (ii) Unrestricted Contributions, (iii) proceeds derived from (A)
accounts receivable, (B) insurance, except to the extent the application of such proceeds is specifically provided for
by the Master Indenture, (C) all rights to payment for goods sold or leased or for services rendered that are not
evidenced by an instrument or chattel paper, whether or not it has been earned by performance, (D) realized
investment income from securities and other investments, (E) inventory and other tangible and intangible Property,
(F) medical or hospital insurance, indemnity or reimbursement programs or agreements, and (G) contract rights and
other rights and assets now or hereafter owned, held or possessed by each Member, and (iv) rentals received from
the leasing of Property.
"Guaranty" means any obligation of a Person guaranteeing any Indebtedness of any Primary Obligor in
any manner, whether directly or indirectly, including but not limited to obligations, contingent or otherwise, by such
Person (i) to purchase such Indebtedness or any Property constituting security for it, (ii) to advance or supply funds
(1) for the purchase or payment of such Indebtedness, or (2) to maintain working capital or other balance sheet
condition, (iii) to purchase securities or other Property or services primarily to assure the owner of such
Indebtedness of the Primary Obligor's ability to make payment of the Indebtedness, or (iv) otherwise to assure the
owner of such Indebtedness against loss in respect thereof.
"Health Care Facilities" means any Facilities that constitute a hospital, clinic, medical office building,
ambulatory care center, emergency or critical care center or nursing or extended care center or other facilities that
are used or to be used in the provision of health care services.
"Historical Maximum Annual Debt Service Coverage Ratio" means the ratio determined by dividing
Income Available for Debt Service for a Fiscal Year by the Historical Maximum Annual Debt Service Requirement
of a Person or group of Persons for the same Fiscal Year.
"Historical Maximum Annual Debt Service Requirement" means the largest total Debt Service
Requirement for the Fiscal Year for which a Historical Maximum Annual Debt Service Coverage Ratio is being
calculated.
"Historical Pro Forma Debt Service Coverage Ratio" means the ratio determined by dividing Income
Available for Debt Service for the Fiscal Year for which the ratio is being calculated by the Maximum Annual Debt
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Service Requirement for the Long-Term Indebtedness outstanding in such Fiscal Year (other than any Long-Term
Indebtedness being refunded with the Long-Term Indebtedness then proposed to be issued, if any) and the LongTerm Indebtedness then proposed to be issued, if any; provided that, unless otherwise provided, when such
calculation is being made with respect to the Obligated Group, Income Available for Debt Service and the
Maximum Annual Debt Service Requirement will be determined only with respect to those Persons who are
Members of the Obligated Group at the time of such calculation.
"Holder" means the registered owner of any fully registered or book entry Obligation unless alternative
provision is made in a pertinent Supplemental Master Indenture for establishing ownership of such Obligation, in
which case the alternative provision will control.
"Hospital" means (i) Phoebe Putney Memorial Hospital, Inc., a Georgia nonprofit corporation, and (ii) any
surviving, resulting, or transferee entity as provided in the Agreement.
"Hospital Representative" means the person or persons at the time designated to act on behalf of the
Hospital by written certificate furnished to the Issuer and the Trustee containing the specimen signatures of such
person or persons and signed on behalf of the Hospital by its President or Vice President. Such certificate may
designate an alternate or alternates.
"Income Available for Debt Service" means, for any period, the excess of Revenues over Expenses of a
Person or group of Persons.
"Indenture" means the Indenture of Trust, dated as of December 1, 2012, between the Issuer and the
Trustee, and any amendments or supplements thereto.
"Indebtedness" means, for any Person, (i) all Guaranties by such Person, (ii) all Capitalized Lease
obligations and obligations under installment sale or conditional sale contracts incurred or assumed by any Person,
and (iii) all obligations for the payment of money incurred or assumed by such Person (1) due and payable in all
events or (2) if incurred or assumed primarily to assure the repayment of money borrowed or credit extended, due
and payable upon the occurrence of a condition precedent or upon the performance of work, possession of Property
as lessee, rendering of services by others or otherwise, and includes, without limitation, Non-Recourse Indebtedness
and the principal portion of all Capitalized Leases; provided that Indebtedness does not include the Indebtedness of
one Member to another Member, the joint and several liability of any Member on Indebtedness issued by another
Member, or any obligation to repay moneys deposited by patients or others with a Member as security for or as
prepayment of the cost of patient care or any rights of residents of life care, elderly housing or similar facilities or
endowment or similar funds deposited by or on behalf of such residents.
"Independent Architect" means an architect, engineer or firm of architects or engineers selected by a
Member, licensed by, or permitted to practice in, the state where the construction involved is located, which
architect, engineer or firm of architects or engineers, in the case of an individual, is not a member, director, officer
or employee of any Member and, in the case of a firm, is not an Affiliate of any Member of the Obligated Group or
any of its Affiliates.
"Independent Counsel" means an attorney duly admitted to practice law before the highest court of any
state and who is not a full time employee, director, officer, or partner of the Issuer or the Hospital.
"Initial Obligation" means collectively the Hospital's Series 2002 Obligation issued under Series 2002
Supplement to Master Indenture and the Hospital's Existing Certificates Obligation issued under the Existing
Certificates Supplement to Master Indenture on May 9, 2002.
"Insurance Consultant" means a Person who, in the case of a natural person, is not a member, director,
officer or employee of any Member and which, in the case of a firm, is not an Affiliate of any Member of the
Obligated Group or any of its Affiliates, appointed by the Obligated Group Agent, qualified to survey risks and to
recommend insurance coverage for hospital or health care facilities and services of the type involved, and having a
favorable reputation for skill and experience in such surveys and such recommendations, and may be a broker or
agent with whom or which any Member transacts business.
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"Interest Payment Date" means each June 1 and December 1, beginning on June 1, 2013.
"Issuer" means the Hospital Authority of Albany-Dougherty County, Georgia, and its successors and
assigns.
"Issuer Representative" means the person or persons at the time designated to act on behalf of the Issuer
by written certificate furnished to the Hospital and the Trustee containing the specimen signatures of such person or
persons and signed on behalf of the Issuer by its duly authorized agent. Such certificate may designate an alternate
or alternates.
"Lien" means any mortgage, pledge or lease of, security interest in or lien, charge, restriction or
encumbrance on any Property of a Person in favor of, or which secures any obligation to, any Person other than
another Member, and any Capitalized Lease under which any Member is lessee and the lessor is not another
Member.
"Loan Agreement" means the Loan Agreement between the Issuer and the Hospital, and any amendments
and supplements thereto.
"Long-Term Indebtedness" of a Person means (i) all Indebtedness of such Person for money borrowed or
credit extended that is not Short-Term, (ii) all Indebtedness of such Person incurred or assumed in connection with
the acquisition or construction of Property that is not Short-Term, (iii) all Short-Term Indebtedness the Person incurs
that is of the type described in paragraph (d) under "The Master Indenture—Additional Permitted Indebtedness, (iv)
the Person's Guaranties of Indebtedness that is not Short-Term, and (v) Capitalized Rentals under the Person's
Capitalized Leases; provided that Indebtedness that could be described by more than one of the foregoing categories
will not in any case be considered more than once in any calculation made under the Master Indenture.
"Master Indenture" means the Master Trust Indenture dated as of March 1, 2002, between U.S. Bank
National Association (as successor to SunTrust Bank), as master trustee (the "Master Trustee"), and the Obligated
Group (comprised on the date hereof of the Hospital and Phoebe Putney Health System, Inc.), and any amendments
or supplements thereto.
"Material Adverse Effect" means a material adverse effect on (i) the business, Property, condition
(financial or otherwise) or results of operations of any Member of the Obligated Group, (ii) the ability of any
Member of the Obligated Group to perform its obligations under the Related Documents, or (iii) the validity or
enforceability of any of the Master Indenture, the Series 2010A Certificates, or the indenture of trust, loan
agreement or the promissory note related to the Series 2010A Certificates or the rights or remedies of the parties
(other than any Member of the Obligated Group) thereunder.
"Maximum Annual Debt Service Requirement" means the largest total Debt Service Requirements for
specified Indebtedness outstanding for the Fiscal Year for which debt service coverage is being calculated or any
future Fiscal Year.
"Maximum Guaranty Liability" of a Person as of any date means the greater of either (a) or (b) below:
(a) the greater of (i) or (ii) as of such date:
(i)
the outstanding amount of all Obligations issued by such Person, or
(ii)
the fair market value of all property acquired, in whole or part, with the proceeds
of such Obligations by such Person; or
(b) the greatest of the Fair Value Net Worth of such Person as of (i) the latest fiscal year-end of
such Person, (ii) each fiscal quarter-end of such Person thereafter occurring on or prior to the date of the
determination of Maximum Guaranty Liability, (iii) the date on which enforcement of the pertinent Cross
Guarantee is sought, and (iv) the date on which a case under the United States Bankruptcy Code is
commenced with respect to any Member.
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"Moody's" means Moody's Investors Service, Inc., a corporation organized and existing under the laws of
the State of Delaware, its successors and assigns, and, if such corporation is dissolved or liquidated or no longer
performs the functions of a securities rating agency, "Moody's" will be deemed to refer to any other nationally
recognized securities rating agency designated by the Hospital by written notice to the Trustee.
"Non-Recourse Indebtedness" means any Indebtedness the liability for which is effectively limited to
Property, Plant and Equipment (other than the Primary Land) and the income therefrom with no recourse, directly or
indirectly, to any other Property of any Member.
"Obligated Group Agent" means the Hospital or such other Member as may be designated from time to
time by written notice to the Master Trustee and each Related Issuer executed by the Chief Executive Officer of the
Hospital or the Chairman of the Hospital's Governing Body or, if the Hospital is no longer a Member of the
Obligated Group, of each Member of the Obligated Group.
"Obligation" means the Initial Obligation and any Additional Obligation and any Obligation or
Obligations issued in exchange for them.
"Officer's Certificate" means a certificate signed, in the case of a certificate delivered by a corporation,
by the President or any other officer authorized to sign by resolution of the corporation's Governing Body or, for a
certificate delivered by any other Person, the chief executive or chief financial officer of such other Person.
"Opinion of Counsel" means a written opinion of counsel who is reasonably acceptable to the party for
whom the opinion is being delivered and to the Related Bond Trustee. The counsel may be an employee of or
counsel to the Authority, the Related Bond Trustee or the Hospital.
"Outstanding" or "Bonds Outstanding" means all Bonds which have been authenticated and delivered
by the Trustee under the Indenture, except:
(a)
to, maturity;
Bonds canceled after purchase in the open market or because of payment at, or redemption prior
(b)
Bonds paid or deemed paid pursuant to the Indenture;
(c)
Bonds in lieu of which others have been authenticated under the Indenture; and
(d)
Bonds deemed tendered under the Indenture and for which another Bond has been issued.
"Outstanding Obligations" or "Obligations Outstanding" means all Obligations which the Master
Trustee has duly authenticated and delivered under the Master Indenture, except:
(a)
Obligations cancelled after purchase in the open market or because of payment at or
prepayment or redemption before maturity;
(b)
Obligations deemed satisfied under the provisions of Article VIII;
(c)
Obligations in lieu of which others have been authenticated under the Master Indenture;
(d)
Obligations held by a Member.
and
Notwithstanding the foregoing, any Obligation securing Related Bonds will be deemed outstanding if such Related
Bonds are Outstanding.
"Outstanding Related Bonds" or "Related Bonds Outstanding" means all Related Bonds that the
Related Bond Trustee has duly authenticated and delivered under the Related Bond Indenture and are deemed
outstanding under the terms of such Related Bond Indenture including, except for the purposes of all covenants,
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approvals, waivers and notices required to be obtained or given under the Related Bond Indenture, Related Bonds
held or owned by a Member.
"Owner" means the person or persons in whose name or names a Bond is registered on the books of the
Issuer kept by the Trustee for that purpose in accordance with provisions of the Indenture.
"Par" means 100% of the principal amount of any Bond, or of the aggregate principal amount of the
Bonds Outstanding, as the context may require, exclusive of accrued interest.
"Participant" means one of the entities which is a member of the Securities Depository and deposits
securities, directly or indirectly, in the Book Entry System.
"Permitted Encumbrances" means Liens created under the Master Indenture, any Related Loan
Document, any Related Bond Indenture and, as of any particular time:
(a)
Liens arising by reason of good faith deposits with a Member in connection with tenders,
leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by any
Member to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds,
and deposits as security for the payment of taxes or assessments or other similar charges; any Lien arising
by reason of deposits with, or the giving of any form of security to, any governmental agency or any body
created or approved by law or governmental regulation for any purpose at any time as required by law or
governmental regulation as a condition to the transaction of any business or the exercise of any privilege or
license, or to enable any Member to maintain self-insurance or to participate in any funds established to
cover any insurance risks or in connection with workmen's compensation, unemployment insurance,
pensions or profit sharing plans or other social security plans or programs, or to share in the privileges or
benefits required for corporations participating in such arrangements;
(b)
any Lien on Property acquired by a Member other than Property classified as Primary
Land, which Lien secures (i) Indebtedness issued, incurred or assumed by the Member in connection with
and to effect such acquisition or (ii) existing Indebtedness that will remain outstanding after such
acquisition but will not be assumed by the Member, if in either case the aggregate principal amount of such
Indebtedness does not exceed the fair market value of the Property subject to such Lien as determined in
good faith by the Member's Governing Body;
(c)
any Lien existing on the date of authentication and delivery of the Initial Obligation or
otherwise as listed in Exhibit A attached to the Master Indenture provided that no such Lien may be
increased, extended, renewed or modified to apply to any Property of a Member not subject to such Lien on
the date the Lien was first listed in Exhibit A or to secure Indebtedness not Outstanding on such date,
unless such Lien as extended, renewed or modified otherwise qualifies as a Permitted Encumbrance;
(d)
any Lien on the Property of any Member granted in favor of or securing Indebtedness to
any other Member;
(e)
any Lien on Property if such Lien equally and ratably secures all of the Obligations and
only the Obligations;
(f)
any lease by a Member as lessor of Property that is of a type that is customarily (in the
judgment of the Obligated Group Agent's Governing Body) the subject of such a lease, including, but not
limited to, office space for physicians and educational institutions, food service facilities, gift shops and
radiology or other hospital-based specialty services, pharmacy and similar departments; any lease entered
into in accordance with the provisions of the Master Indenture; and leases, licenses or similar rights to use
Property under which the Hospital or any other Member is the lessor existing as of the date of the delivery
of the Initial Obligation (for the Hospital) or the date the Member joins the Obligated Group (for any other
Member), and any renewals and extensions thereof;
(g)
Liens for taxes and special assessments that are not then delinquent, or if then delinquent
are being contested;
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(h)
utility, access and other easements and rights-of-way, restrictions, encumbrances and
exceptions that do not materially interfere with or materially impair the operation for which the Property
affected thereby was designed or last modified;
(i)
any mechanic's, laborer's, materialman's, supplier's or vendor's Lien or right in respect
thereof if payment is not yet due under the contract in question or if such Lien is being contested;
(j)
such Liens, defects, irregularities of title and encroachments on adjoining property as
normally exist with respect to property similar in character to the Property involved and that do not
materially adversely affect the value of, or materially impair, the Property affected thereby for the purpose
for which it was acquired or is held by its owner;
(k)
zoning laws and similar restrictions that are not violated by the Property affected thereby;
(l)
statutory rights under Section 291, Title 42 of the United States Code, as a result of what
are commonly known as Hill-Burton grants, and similar rights under other federal statutes or statutes of the
state in which the Property involved is located;
(m)
all right, title and interest of any state or municipality or the public in and to tunnels,
bridges and passageways over, under or upon a public way;
(n)
Liens on or in Property given, granted, bequeathed or devised by its owner to a Member
after the date of issuance of the Initial Obligation, which Liens are existing at the time of such gift, grant,
bequest or devise, provided that (i) such Liens consist solely of restrictions on the use thereof or the income
therefrom, or (ii) such Liens secure Indebtedness that is not assumed by any Member and such Liens attach
solely to the Property (including the income therefrom) that is the subject of such gift, grant, bequest or
devise;
(o)
Liens of or resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which any Member at any time in good faith is
prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such
appeal or proceeding for review is in existence;
(p)
Liens on moneys deposited by patients or others with a Member as security for or as
prepayment of the cost of patient care or any rights of residents of life care, elderly housing or similar
facilities to endowment or similar funds deposited by or on behalf of such residents;
(q)
Liens on Excluded Property;
(r)
Liens on Property due to rights of third party payors for recoupment of excess payments
made by such payors;
(s)
any security interest in any construction or acquisition fund, depreciation reserve fund,
debt service or interest reserve fund, debt service fund, rebate fund or any similar fund established under
the terms of any Supplemental Master Indenture, Related Bond Indenture or Related Loan Document in
favor of the Master Trustee, a Related Bond Trustee, a Related Issuer or the holder of the Indebtedness
issued under such Supplemental Master Indenture, Related Bond Indenture or Related Loan Document or
the holder of any related Commitment Indebtedness;
(t)
any Lien on any Related Bond or any evidence of Indebtedness of any Member acquired
by or on behalf of any Member, which Lien secures Commitment Indebtedness and only Commitment
Indebtedness;
(u)
Liens on accounts receivable arising as a result of the sale of such accounts receivable
with recourse, provided that (i) the principal amount of Indebtedness secured by any such Lien does not
exceed the aggregate sales price of such accounts receivable received by the Member selling the same and
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(ii) the aggregate outstanding principal amount of Indebtedness secured by all Liens granted as described in
this paragraph does not exceed at any time 25% of the outstanding amount of all of the Obligated Group's
accounts receivable;
(v)
Liens securing Indebtedness permitted as described under "The Master Indenture—
Permitted Additional Indebtedness" (excluding Non-Recourse Indebtedness) so long as the aggregate
Property Value of the Property subject to all of the Liens allowed as described in this paragraph is less than
15% of the Property Value of all of the Obligated Group's Property, Plant and Equipment as shown on the
most recent Financial Statements;
(w)
Liens securing Non-Recourse Indebtedness;
(x)
purchase money security interests in Equipment not acquired with the proceeds of
Obligations, to the extent such purchase money security interests secure Indebtedness permitted under the
Master Indenture;
(y)
Liens on the Obligated Group's inventory, provided the aggregate principal amount of
Indebtedness secured by all Liens granted as described in this paragraph does not exceed at any time 25%
of the Property Value of such inventory; and
(z)
other Liens or security interests securing the financing of Equipment in an amount equal
to the greater of $100,000 or 15% of the Obligated Group's total operating revenues as shown on the most
recent Financial Statements.
"Person" means any natural person, firm, joint venture, association, partnership, business trust,
corporation, public body, agency or political subdivision or any other similar entity.
"Pledged Shares" means 100% of the voting stock of any Restricted Affiliates which are stock
corporations.
"Project" means the health care facilities financed with the proceeds of the Bonds as more fully described
in Exhibit A to the Agreement.
"Projected Long-Term Indebtedness Coverage Ratio" means the ratio determined by dividing the
Obligated Group's projected Income Available for Debt Service for any future Fiscal Year by the Maximum Annual
Debt Service Requirement for the Long-Term Indebtedness incurred by the Obligated Group and expected to be
Outstanding during such future Fiscal Year.
"Projected Rate" means the projected yield at par of an obligation as set forth in a Consultant's report.
The report will state that in determining the Projected Rate the Consultant reviewed the yield evaluations at par of
not less than three obligations (or such lesser number as the Consultant deems appropriate, but in no event fewer
than one) selected by such Consultant, the interest on which is entitled to the exemption from federal income tax
afforded by Section 103(a) of the Code or any successor thereto (or, if it is not expected that it will be reasonably
possible to issue such tax-exempt obligations, then obligations the interest on which is taxable), which obligations
such Consultant states in its report are reasonable to use as comparisons in developing such Projected Rate and
which obligations (i) were outstanding on a date selected by the Consultant from the 90-day period preceding the
date of the calculation using the Projected Rate in question, (ii) to the extent practicable, are obligations of Persons
engaged in operations similar to those of the Obligated Group and having a credit rating similar to that of the
Obligated Group, (iii) are not entitled to the benefits of any credit enhancement, including without limitation any
letter or line of credit or insurance policy, and (iv) to the extent practicable, have a remaining term and amortization
schedule substantially the same as the obligation with respect to which such Projected Rate is being developed.
"Project Fund" means the fund created in the Indenture and more fully described in “The Indenture–
Revenues and Funds” herein.
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"Property" means any and all rights, titles and interests in and to any and all property, whether real or
personal, tangible (including cash) or intangible, wherever situated and whether now owned or hereafter acquired,
other than Excluded Property.
"Property, Plant and Equipment" means all Property of a Member that is classified as property, plant
and equipment under generally accepted accounting principles.
"Property Value" means, when used with respect to Property of a Member, either the value of such
Property, net of accumulated depreciation and amortization, as reflected in the most recent Financial Statements, or
the current market value of such Property as of the time a ratio is to be calculated or value determined, in either case
evidenced by an Officer's Certificate of the Obligated Group Agent. The Officer's Certificate will show Property
Value as that value set forth in the most recent Financial Statements except that a greater current market value may
be assigned to Property on the basis of an appraisal of an independent party qualified by reputation and experience
completed within three years before the date of the Officer's Certificate or, with respect to Property other than
Property, Plant and Equipment, the current market value of such Property as set forth in the Officer's Certificate if
such certificate is accompanied by appropriate documentation indicating the basis of such valuation. When referring
to Property of all Members, "Property Value" means the aggregate of the values so determined for the Property of
all of the Members determined so as not to include the Property of any Member more than once.
"Put Indebtedness" means Indebtedness that is payable or required to be purchased by or on behalf of the
underlying obligor, at its owner's option, before its stated maturity date.
"Qualified Liquidity Facility" means a letter of credit, line of credit, standby purchase agreement or
similar instrument pursuant to which a financial institution agrees to purchase any Put Indebtedness provided that (i)
the financial institution is an entity whose unsecured long term debt obligations or whose claims paying abilities, as
appropriate, are rated in any of the three highest rating categories of at least one Rating Agency; and (ii) the
remaining term of the liquidity facility is at least 364 days from the date the calculation is made.
"Rating Agency" means Moody's, S&P, Fitch or any other nationally-recognized securities rating agency
and their respective successors and assigns.
"Rebate Fund" means the fund created in the Indenture and more fully described in “The Indenture–
Revenues and Funds” herein.
"Record Date" means the 15th day of the month immediately preceding each Interest Payment Date.
"Related Bonds" means revenue bonds, revenue certificates or similar obligations issued by any state of
the United States or any municipal corporation or other political subdivision formed under the laws of any state or
any constituted authority, agency or instrumentality of any of the foregoing empowered to issue obligations on its
behalf, the proceeds of which are loaned or otherwise made available to any Member in consideration, whether in
whole or in part, of the execution, authentication and delivery of an Obligation or Obligations to such governmental
issuer.
"Related Bond Indenture" means any indenture, bond resolution or similar instrument under which any
series of Related Bonds is issued.
"Related Bond Trustee" means any trustee under any Related Bond Indenture and any successor trustee
tunder the Master Indenture or, if no trustee is appointed under a Related Bond Indenture, the Related Issuer.
"Related Issuer" means any issuer of a series of Related Bonds.
"Related Loan Document" means any document or documents, including without limitation any lease,
sublease or installment sales contract, under which any proceeds, including proceeds of any Related Bonds, are
advanced to or for the benefit of any Member (or any Property financed or refinanced with such proceeds is leased,
subleased or sold to a Member).
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"Related Tax Documents" means a tax compliance agreement or any similar instruments executed and
delivered in connection with the issuance of any series of Related Bonds.
"Restricted Affiliate" means any Affiliate of a Member of the Obligated Group that:
(a) is either (i) a non-stock membership corporation of which one or more Members of the
Obligated Group are the sole members, or (ii) a non-stock, non-membership corporation or a trust of which
the sole beneficiaries or controlling Persons are one or more Members of the Obligated Group, or (iii) a
stock corporation all of the outstanding shares of stock of which are owned by one or more Members of the
Obligated Group, and
(b) if such Affiliate is a non-stock corporation or a trust,
(i) has the legal power, with approval of a majority of its Governing Body but without
the consent of any other Person, to transfer to any Member of the Obligated Group (or to another
Restricted Affiliate that possesses the power to transfer to any Member of the Obligated
Group) money required for the payment of Indebtedness of any Member of the Obligated Group,
and
(ii) the corporate charter or bylaws, in the case of a non-stock corporation, and the
applicable organizational documents, in the case of a trust, will provide that (A) the net assets of
such Affiliate will be transferred to the Member or Members of the Obligated Group that are its
sole members, beneficiaries, or controlling persons upon liquidation or dissolution of such
Affiliate, provided that if such Affiliate is an organization described in Section 501(c)(3) of the
Code, then for so long as the applicable Members of the Obligated Group are organizations
described in Section 501(c)(3) of the Code the organizational documents of such Affiliate subject
to applicable law may (1) provide for the naming of another Member of the Obligated Group as a
substitute beneficiary if a then-current beneficiary ceases to be an organization described in
Section 501(c)(3) of the Code and (2) prohibit transfers to organizations other than organizations
described in Section 501(c)(3) of the Code, (B) such Affiliate will be organized for the purpose,
among others, of aiding and lending financial support and assistance to the Member or Members
of the Obligated Group that are its sole members, beneficiaries, or controlling persons, (C) the
power to alter, amend, or repeal the corporate charter or bylaws or other applicable organizational
documents of such Affiliate, or to adopt new bylaws for such entity, will be reserved to the
Members of the Obligated Group that are its sole members, beneficiaries, or controlling persons,
and (D) the Members of the Obligated Group that are its sole members, beneficiaries, or
controlling persons will have the sole right to appoint and dismiss, with or without cause, the
members of the Governing Body of such Affiliate, and
(iii) has the ability under applicable law and its organizational documents, with approval
of a majority of the members of its Governing Body, to transfer all assets of such Affiliate
remaining after payment of its debts to any Member of the Obligated Group or to another
Restricted Affiliate whose remaining assets may be so transferred, provided that if such Affiliate is
an organization described in Section 501(c)(3) of the Code, then for so long as the applicable
Member of the Obligated Group is an organization described in Section 501(c)(3) of the Code, the
organizational documents of such Affiliate and applicable law may (1) provide for the naming of
another Member of the Obligated Group as a substitute beneficiary if the then current beneficiary
ceases to be an organization described in Section 501(c)(3) of the Code and (2) prohibit transfers
to organizations not described in Section 501(c)(3) of the Code,
(c) if such Affiliate is a stock corporation, takes such action as is reasonably required by the
Master Trustee to perfect the security interest created by the Master Indenture in the Pledged Shares of such
Affiliate, and
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(d) has satisfied (or a predecessor has satisfied) the requirements set forth in the Master Indenture
for becoming a Restricted Affiliate and has not thereafter ceased to satisfy the requirements of clauses
(a) and (b) above or satisfied the requirements set forth in the Master Indenture for ceasing to be a
Restricted Affiliate.
The fact that one or more specified elements described above is not satisfied will not disqualify a Person as
a Restricted Affiliate if, in the written opinion of Counsel to such Restricted Affiliate delivered to the Master
Trustee, substantially all of the indicia described above relating to the power to transfer Property of, and control, the
applicable Affiliate of a Member of the Obligated Group, is vested in one or more Members of the Obligated Group.
"Revenues" means, for any period, (i) for any Person providing health care services, the sum of (1) gross
patient service revenues less contractual allowances, free care and discounted care, plus (2) other operating
revenues, plus (3) non-operating revenues (other than Contributions, income derived from the sale of assets not in
the ordinary course of business or any gain from the extinguishment of debt or other extraordinary item), plus (4)
Adjusted Contributions, all as determined under generally accepted accounting principles; and (ii) for any other
Person, gross revenues less sale discounts and sale returns and allowances, as determined under generally accepted
accounting principles; provided in any case, that (A) no such determination will take into account (1) any gain or
loss resulting from either the extinguishment of Indebtedness or the sale, exchange or other disposition of capital
assets not made in the ordinary course of business, (2) any unrealized gains and losses on investments, or (3) any
nonrecurring items of an extraordinary nature which do not involve the receipt, expenditure or transfer of assets, (B)
Revenues will not include income from the investment of funds held in an escrow to the extent that such income has
been or is required to be applied to the payment of principal of or interest on Long-Term Indebtedness which is
excluded from the determination of Debt Service Requirement or Related Bonds secured by such Long-Term
Indebtedness, and (C) Revenues of the Obligated Group will exclude any revenues attributable to transactions
between any Member and any other Member and revenues derived from property that secures Non-Recourse
Indebtedness.
"Securities Depository" means The Depository Trust Company, New York, New York, or its nominee,
and its successors and assigns.
"Short-Term Indebtedness" means indebtedness having an original maturity less than or equal to one
year and not renewable at the debtor's option for a term greater than one year beyond the date of original issuance.
"Series 2010A Supplement To Master Indenture" means the Series 2010A Supplement to the Master
Indenture dated as of July 1, 2010 between U.S. Bank National Association (as successor to SunTrust Bank), as
trustee thereunder and the Members of the Obligated Group thereunder.
"Series 2012 Master Note" means the promissory note dated the date of issuance of the Bonds, from the
Hospital to the Issuer in an amount equal to the principal amount of the Bonds.
"State" means the State of Georgia.
"Supplemental Master Indenture" means an indenture amending or supplementing the Master Indenture
entered into pursuant to Article VII.
"S&P" means Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., a
corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such
corporation is dissolved or liquidated or no longer performs the functions of a securities rating agency, "S&P" will
be deemed to refer to any other nationally recognized securities rating agency designated by the Hospital by written
notice to the Trustee.
"Tax-Exempt Organization" means a Person that (i) is organized under the laws of the United States of
America or any of its states and (ii) is an organization that is described in Section 501(c)(3) of the Code, exempt
from federal income taxes under Section 501(a) of the Code, and not a "private foundation" within the meaning of
Section 509(a) of the Code.
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"Term of Agreement" means the term of the Agreement more fully described in “The Agreement–Term
of Agreement” herein.
"Trustee" means U.S. Bank National Association, a national banking association organized and existing
under the laws of the United State and its successors and any corporation resulting from or surviving any
consolidation or merger to which it or its successors may be a party and any successor Trustee at the time serving as
successor Trustee hereunder. "Principal Office" of the Trustee means the address specified in Section 13.04 hereof
or such other address as may be designated in writing to the Issuer and the Hospital.
"Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses in the
Indenture.
"Unfunded Benefit Liabilities" means, with respect to a Title IV Plan under the Employee Retirement
Income Security Act of 1974, as now in effect or as hereinafter amended ("ERISA"), the amount (if any) by which
(i) the present value of all benefit liabilities under such Plan within the meaning of section 4001(a)(16) of ERISA
exceeds (ii) the fair market value of all Plan assets allocable to such liabilities, determined as of the then most recent
valuation date for such plan based on the actuarial assumptions used for plan funding in connection with that
valuation.
"Unrestricted" means assets of any Person or Contributions to any Person, the use of which (as
determined in accordance with generally accepted accounting principles) is not restricted for a purpose inconsistent
with their application to the payment of Expenses or Indebtedness of such Person.
"Variable Rate Indebtedness" means any Indebtedness the interest rate on which is not established at the
time of incurrence at a fixed or constant rate.
"Written Request" means with reference to a Related Issuer, a request in writing signed by the Related
Issuer's Chairman, Vice Chairman, President, Vice President, Executive Director, Secretary or Assistant Secretary
and with reference to any Member means a request in writing signed by the Member's chief executive officer, or any
other officers designated by the Related Issuer or the Member, as the case may be.
THE MASTER INDENTURE
Parity Obligations
All obligations of the Members with respect to Obligations issued under the Master Indenture will be
equally and ratably secured on a parity basis under the Master Indenture. The principal of and interest on the
Obligations issued under the Master Indenture are secured by an assignment and pledge of the Gross Receipts and
are payable in accordance with and are further secured by the lien of the Master Indenture. Each Member of the
Obligated Group is jointly and severally liable for each and every Obligation. The obligations, agreements,
covenants, and restrictions of the Master Indenture are, and constitute, obligations, agreements, and covenants of,
and restrictions relating to, all Members of the Obligated Group. All payments required to be made under any
Obligation constitute the joint and several obligation of each Member of the Obligated Group.
Security for Obligations
Any one or more series of Obligations issued under the Master Indenture may, so long as any Liens created
in connection therewith constitute Permitted Encumbrances, be secured by security (including without limitation
letters or lines of credit, insurance or Liens on Property, including Health Care Facilities of the Obligated Group, or
security interests in depreciation reserve, debt service reserve, interest reserve or debt service or similar funds),
which security need not extend to any other Indebtedness (including any other Obligations or series of Obligations).
Cross-Guaranties
(a)
Pursuant to the Master Indenture, each Member of the Obligated Group, jointly and severally,
unconditionally guarantees to the Holders of the Obligations and to the Master Trustee the due and punctual
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payment of the principal of and interest on the Obligations and all other amounts due and payable under the Master
Indenture and the Obligations when and as the same become due and payable, whether at the stated maturity or by
declaration of acceleration, call for redemption, or otherwise, according to the terms of the Obligations; provided
that the maximum aggregate liability of each Member of the Obligated Group under the Master Indenture as of any
date will be its Maximum Guaranty Liability as of such date. The Obligations may from time to time exceed the
Maximum Guaranty Liability of any Member of the Obligated Group, and may exceed the aggregate Maximum
Guaranty Liability of all Members of the Obligated Group, without impairing any Member’s rights and obligations
under the Master Indenture. The parties intend that in no event will any Member’s obligations under its Cross
Guarantee constitute or result in a violation of any applicable fraudulent conveyance or similar law of any relevant
jurisdiction. In the event that any Cross Guarantee would, but for the immediately preceding sentence, constitute or
result in such a violation, the Master Indenture provides that the liability of a Member of the Obligated Group under
such Cross Guarantee will be reduced to the maximum amount permissible under the applicable fraudulent
conveyance or similar law. Subject to the preceding limitation on liability, such Cross Guarantee constitutes a
guarantee of payment in full when due and not merely a guarantee of collectibility. In addition to the foregoing,
each Member of the Obligated Group will cause, to the extent permitted by law, its Restricted Affiliates to transfer
to the Obligated Group such of their property as is necessary to enable the Obligated Group to meet all of its joint
and several liability (determined without regard to the aggregate Maximum Guaranty Liability of the Members of
the Obligated Group) in respect of all Outstanding Obligations, in the maximum amount permissible under the
applicable fraudulent conveyance or similar laws.
(b)
Except as provided below, the obligations of each Member of the Obligated Group under the
Master Indenture will be absolute and unconditional, and will not be impaired, modified, released, or limited by any
occurrence or condition whatsoever.
(c)
Pursuant to the Master Indenture, each Member of the Obligated Group (i) waives diligence,
presentment, demand of payment, filing of claims with a court in the event of the merger, insolvency, or bankruptcy
of any other Member of the Obligated Group, any right to require a proceeding first against any other Member of the
Obligated Group or to realize on any collateral, protest, or notice with respect to the Obligations and all demands
whatsoever, (ii) acknowledges that any agreement, instrument, or document evidencing the Obligations may be
transferred and that the benefit of its obligations under the Master Indenture will extend to each Holder of any
agreement, instrument, or document evidencing the Obligations without notice to them, and (iii) covenants that its
Cross Guarantee will not be discharged except as described in paragraph (e) below or by complete performance of
the Obligations or its Cross Guarantee. Each Member of the Obligated Group further agrees that if at any time all or
any part of any payment theretofore applied by any person to any Obligation is, or must be, rescinded or returned for
any reason whatsoever, such Obligation will for the purposes of any Member’s Cross Guarantee to the extent that
such payment is or must be rescinded or returned, be deemed to have continued in existence notwithstanding such
application, and such Member’s Cross Guarantee will continue to be effective or be reinstated, as the case may be,
as to such Obligations as though such application had not been made.
(d)
Each Member of the Obligated Group will be subrogated to all rights of the Holders of the
Obligations and the Master Trustee against the other Members in respect of any amounts paid by such Member of
the Obligated Group pursuant to the provisions of the Master Indenture; provided that no Member of the Obligated
Group will be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation
until all Obligations have been paid in full or discharged.
(e)
If any Person which was a Member of the Obligated Group ceases to be a Member of the
Obligated Group, thereupon, without any further act, such person will cease to be a "Cross Guarantor" under the
Master Indenture, and its obligations under the Master Indenture as "Cross Guarantor" will be terminated and
released; provided that the foregoing provision of this paragraph will be inapplicable: (i) if such person ceases to be
a Member of the Obligated Group as a result of a transaction which is prohibited by the terms of the Master
Indenture or (ii) if, at the time that such person would otherwise have been released under this paragraph, there has
occurred and is continuing a default in the payment of principal or interest on any Obligation (in which event this
clause (ii) will cease to apply to such person at such time as such default is cured); and provided further that the
Hospital may not be cease to be a Member of the Obligated Group so long as the Existing Certificates are
outstanding.
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(f)
In the event that any Member of the Obligated Group makes (or is called upon to make) a payment
under its Cross Guarantee (such Member of the Obligated Group being referred to herein as the "Funding Party"),
each of the other Members of the Obligated Group (each, a "Contributor") will contribute to the Funding Party such
Contributor’s pro rata share of the amount of such payment. For this purpose, each Contributor’s "pro rata share"
with respect to a payment means the ratio of (i) such Contributor’s Maximum Guaranty Liability as of such date
(without giving effect to such Contributor’s right to receive or obligation to make any contribution under the Master
Indenture) to (ii) the aggregate Maximum Guaranty Liability of all Members (without giving effect to any Member’s
right to receive or obligation to make any contribution under the Master Indenture), determined as of the date such
payment is made (or to be made). The failure of a Contributor to discharge its obligations under this paragraph will
not affect the obligations of any Member of the Obligated Group under its Cross Guarantee. The obligations under
this paragraph will be unaffected by any of the events described in the second paragraph of this caption or any
comparable events pertaining to the Funding Party, its Cross Guarantee, or the undertakings in this paragraph.
Purposes for Which Obligations May be Issued
Obligations may be issued for any lawful corporate purpose of the Obligated Group or, if the same be
lawful for any one Obligated Group Member and not for another, and the Member for which it is lawful will be the
beneficiary of the proceeds of such Obligations, then for any lawful corporate purpose of such Member.
Prepayment or Redemption Dates and Prices
Obligations will be subject to optional and mandatory prepayment or redemption in whole or in part and
may be prepaid or redeemed before maturity as provided in the Master Indenture or the Supplemental Master
Indenture pertaining to the series of Obligations to be prepaid or redeemed, but not otherwise.
Obligations of any series for which a sinking fund has been established will be called for redemption by the
Master Trustee under the provisions of such sinking fund and Obligations to be mandatorily redeemed or paid at
maturity will be redeemed or paid at maturity, as the case may be, in accordance with the Master Indenture and with
any Supplemental Master Indenture pertaining to such Obligations, in both cases without any notice from or
direction of any Member.
Payment of Principal, Premium, if any, and Interest;
Performance of Covenants; Pledge of Gross Receipts
and Establishment of Gross Receipts Account
Each Member unconditionally and irrevocably (subject to such Member's right to cease its status as a
Member of the Obligated Group as described under "—Withdrawal from Obligated Group" below, covenants that it
will promptly pay the principal of, premium, if any, and interest on every Obligation issued under the Master
Indenture and, if required by the terms of the Obligation, purchase or redeem the Obligation, at the place, on the
dates and in the manner provided in the Master Indenture and in the Obligations. Notwithstanding any schedule of
payments upon the Obligations set forth in the Master Indenture or in the Obligations, each Member unconditionally
and irrevocably (subject to such Member's right to cease its status as a Member of the Obligated Group as described
under "—Withdrawal from Obligated Group" below, agrees to be liable to make payments upon each Obligation in
the amounts equal to the amounts to be paid as interest, principal at maturity or by redemption, or premium, if any,
upon any Related Bonds from time to time outstanding at the times such amounts become due on the Related Bonds.
Each Member covenants that it will faithfully perform at all times any and all covenants, undertakings,
stipulations and provisions contained in the Master Indenture and in each Obligation executed, authenticated and
delivered under the Master Indenture.
To secure the prompt payment of the principal of and premium, if any, and the interest on the Obligations
and the performance by each Member of its other obligations under the Master Indenture, each Member pledges to
the Master Trustee for the benefit of the Holders of the Obligations all Gross Receipts. There is granted by each
Member to the Master Trustee for the equal and ratable benefit of the Holders of the Obligations, to the extent
permitted by law, a security interest in present and future accounts receivable, contract rights, general intangibles
and the proceeds of all of the foregoing. The pledge and agreement to pay will not inhibit, and the Master Indenture
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allows, the pledge and assignment of present and future accounts receivable and the proceeds thereof to the extent
permitted under the Master Indenture.
Each Member covenants that it will not pledge or grant a security interest in (except as described above and
as may be otherwise provided in the Master Indenture) any of its Gross Receipts and all other items mentioned
above.
So long as the Existing Certificates are outstanding or until such earlier time as the owners of all of the
Existing Certificates consent that the Hospital need not make the deposit contemplated by this paragraph, in order
further to secure the timely making of the payment of the principal and interest on the Obligations, the Hospital
agrees that it will deposit daily, so far as practicable, all Gross Receipts into a fund designated the "Phoebe Putney
Revenue Fund” which, except as provided in this paragraph, will be held in trust in the name of the Master Trustee
for the benefit of the Holders of the Obligations by one or more banking institution or institutions designated from
time to time as depositary by the Hospital with approval of the Master Trustee. Beginning on the first day of each
calendar month, the depository will accumulate the Gross Receipts until the Monthly Debt Service Funding Date for
the current month is met. From and after each Monhtly Debt Service Funding Date, the depository will promptly
transfer (i) the amount of the Monthly Debt Service Requirement to the Trustee to be applied to payment of the
principal of and interest on the Obligations, and (ii) amounts deposited to the Revenue Fund in excess of the
Monthly Debt Service Requirement to a fund designed the "Phoebe Putney Operating Fund," and the Hospital
Obligated Group Agent will have full authority to withdraw funds from the Phoebe Putney Operating Fund and to
expend such funds for any lawful purpose. The language of this paragraph will constitute all necessary authority
from the Master Trustee to the depository to make the transfers described herein. It is intended that the Master
Trustee will have a perfected security interest in the Phoebe Putney Revenue Fund. For purposes of this paragraph,
"Monthly Debt Service Funding Date" means the day on which the Monthly Debt Service Requirement for the
current month is met. Monthly Debt Service Requirement means, with respect to all outstanding Obligations for the
current calendar month, the sum of:
(A)
for each outstanding Obligation, an amount equal to the interest due thereon on the next
interest payment date for that Obligation, multiplied by a fraction, the numerator of which is 1 and the
denominator of which is the number of calendar months (or fraction thereof) in the period between interest
payments for that Obligation; plus
(B)
for each outstanding Obligation, an amount equal to the principal due thereon on the next
princiupal payment date for that Obligation, multiplied by a fraction, the numerator of which is 1 and the
denominator of which is the number of calendar months (or fraction thereof) in the period between
principal payments for that Obligation.
So long as, in the Opinion of Counsel, such deposit is not required to maintain the pledge and security
interest in the Gross Receipts as contemplated in the Master Indenture, beginning on the date on which no Existing
Certificates are noutstanding or such earlier time as the owners of all of the Existing Certificates consent that the
Hospital need not make the deposit contemplated by the preceding paragraph, the provisions of this paragraph will
apply. Unless an Event of Default has occurred, is continuing and has not been waived, each Member will receive
payments of Gross Receipts and apply said payments according to its usual business practices, to the same extent as
if the Master Indenture were not in existence. Upon the occurrence and continuance of an Event of Default which
has not been waived, each Member of the Obligated Group will deposit on a daily basis all Gross Receipts that are
then on hand and all Gross Receipts thereafter received into a special account which is established with the Master
Trustee pursuant to the Master Indenture. It is intended that the Master Trustee will have a perfected security
interest in all of the foregoing. All such remittances will be deposited in precisely the form received, except for
endorsement of the appropriate Member where necessary for collection, which endorsement each Member agrees in
the Master Indenture to make and which each Member irrevocably authorizes the Master Trustee to make on its
behalf. Each Member agrees that it will not commingle any such remittance with any of its other funds or property,
but will hold them separately until depositing them into the said special account. Each Member agrees that it will
assist the Master Trustee in collecting Gross Receipts, and will take such actions, and execute such instruments and
other documents, as may be requested by the Master Trustee to implement such collection. After the occurrence of
an Event of Default, if (i) all of the Obligations have been paid, or (ii) no Event of Default is continuing and the
payment of the obligations has not been accelerated, or (iii) all Events of Default have been waived, then each
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Member will be entitled thereafter to receive and retain payments of Gross Receipts as provided above. Pending the
use of amounts received as described in this paragraph, the Master Trustee will invest such amounts in its discretion,
with due regard to the future need to expend such amounts.
Representations and Warranties by the Hospital
In the Master Indenture, the Hospital makes various representations and warranties, including the
following:
(a)
The Hospital is a nonprofit corporation duly incorporated under the laws of the State of
Georgia, is in good standing and duly authorized to conduct its business and affairs in Georgia, is duly
authorized and has full power under all applicable laws and its articles of incorporation and by-laws to
enter into, execute and deliver the Master Indenture. The Hospital has duly and effectively taken all action
on its part necessary for the valid execution, delivery and performance of the Master Indenture.
(b)
The execution and delivery of the Master Indenture, the consummation of the
transactions contemplated thereby, and the fulfillment of the terms and conditions thereof do not and will
not conflict with or result in a breach of any of the terms or conditions of any corporate restriction or of any
agreement or instrument under which the Hospital is now bound, and do not and will not constitute a
default under any of the foregoing, or result in the creation or imposition of any Lien of any nature upon
any of the Hospital's Property except for Permitted Encumbrances. The Hospital has good and marketable
fee simple title to all of its Property constituting real property and good and marketable title to all of its
other Property, in all cases, free and clear of all Liens except for Permitted Encumbrances. The current use
of the Hospital's Property does not violate any applicable zoning, land use, environmental or similar law or
restriction.
(c)
Facilities.
The Hospital has all necessary licenses and permits to occupy and operate its existing
(d)
The Hospital is a Tax-Exempt Organization; it has received determination letters from the
Internal Revenue Service to the effect that it is a Tax-Exempt Organization which letters are still in full
force and effect; and it has no "unrelated business taxable income" as defined in Section 512 of the Code
that could have a material adverse effect on its status as a Tax-Exempt Organization or that, if such income
were subject to federal income taxation, would have a material adverse effect on its condition, financial or
otherwise.
Admission into Obligated Group
Any Person may become a Member of the Obligated Group if:
(a)
The Person is a corporation organized and existing under the laws of the United States of
America or one of its states;
(b)
Such Person executes and delivers to the Master Trustee a Supplemental Master
Indenture acceptable to the Master Trustee, executed by the Master Trustee and each then-current Member,
containing (i) the Loan Agreement of such Person (1) to become a Member of the Obligated Group and
thereby become subject to all provisions of the Master Indenture and (2) unconditionally and irrevocably
(subject to such Person's right to cease its status as a Member of the Obligated Group as described under
"—Withdrawal from Obligated Group" below) to make payments upon each Obligation as provided in each
such Obligation and (ii) representations and warranties by such Person substantially similar to those set
forth under "—Representations and Warranties of the Hospital" above other than those contained in
paragraph 4.2(d) if such Person is not a Tax-Exempt Organization (but with such modifications as are
acceptable to the Master Trustee);
(c)
The Obligated Group Agent, by appropriate corporate action, has approved the admission
of such Person to the Obligated Group and each of the Members has taken such appropriate corporate
action, if any, required to approve the admission of such Person to the Obligated Group;
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(d)
The Master Trustee has received (i) an Officer's Certificate of the Obligated Group Agent
that demonstrates that, immediately upon such Person becoming a Member of the Obligated Group (1) the
Members would not, as a result of such admission, be in default in the performance or observance of any
covenant or condition of the Master Indenture and (2) the Obligated Group could meet the conditions
described in paragraph (a) under "--Permitted Additional Indebtedness" below for the incurrence of one
dollar of additional Long-Term Indebtedness, calculated as described below; (ii) an opinion of Independent
Counsel to the effect that (1) the instrument described in paragraph (b) above has been duly authorized,
executed and delivered and constitutes a legal, valid and binding agreement of such Person, enforceable in
accordance with its terms, subject to customary exceptions for bankruptcy, insolvency and other laws
generally affecting enforcement of creditors' rights and application of general principles of equity, and (2)
the admission of such Person to the Obligated Group will not adversely affect the status as a Tax-Exempt
Organization of any Member that otherwise has such status; and (iii) if all amounts due or to become due
on all Related Bonds have not been paid to their holders and provision for such payment has not been made
so as to have resulted in the defeasance of all Related Bond Indentures, an opinion of Bond Counsel to the
effect that under the then-current law the admission of the new Member would not adversely affect the
validity of any Related Bond or any exemption from federal or state income taxation of interest payable on
any Related Bond otherwise entitled to such exemption.
(e)
admission; and
(i) The appropriate exhibits to the Master Indenture are amended to reflect such
(f)
Such Person delivers to the Master Trustee an Officer's Certificate to the effect that such
Person is not currently in default and would not, by becoming a Member, cause a default under any of its
outstanding Indebtedness or any instrument or document under which such Indebtedness was incurred or is
secured.
In making the calculations described in paragraph (d)(i)(2) above, (i) there will be excluded from Revenues
(1) any Revenues generated by such Person's Property that such Person transferred or otherwise disposed of since
the beginning of the Fiscal Year in which such Person became a Member and (2) any Revenues generated by
Property of the new Member that at the time of such Member's entry into the Obligated Group will be categorized as
Excluded Property and (ii) there will be excluded from Expenses (1) any Expenses related to such Person's Property
that such Person transferred or otherwise disposed of since the beginning of the Fiscal Year in which such Person
became a Member and (2) any Expenses related to Property of the new Member that at the time such Member's
entry into the Obligated Group will be categorized as Excluded Property.
Withdrawal from Obligated Group
Each Member agrees not to take any action, corporate or otherwise, that would cause it or any successor to
it to cease to be a Member of the Obligated Group unless:
(a)
The Member proposing to withdraw from the Obligated Group is not a party to any
Related Loan Documents with respect to Related Bonds that remain outstanding;
(b)
Before the date of withdrawal, there is delivered to the Master Trustee an opinion of
Bond Counsel to the effect that the withdrawal of the Member from the Obligated Group will not adversely
affect the validity of any Related Bond or any exemption from federal or state income taxation of interest
payable on it to which any Related Bond would otherwise be entitled;
(c)
The Master Trustee has received an Officer's Certificate of the Obligated Group Agent
that demonstrates that, immediately after the withdrawal of the Member from the Obligated Group, (i) the
Members would not, as a result of the withdrawal, be in default under the Master Indenture, (ii) no
Obligations issued by or on behalf of such Member are Outstanding under the Master Indenture, and (iii)
the Obligated Group could meet the conditions described in paragraph (a) under "--Permitted Additional
Indebtedness" below for the incurrence of one dollar of additional Long-Term Indebtedness;
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(d)
Before the date of withdrawal, there is delivered to the Master Trustee an opinion of
Independent Counsel to the effect that the withdrawal of the Member from the Obligated Group will not
adversely affect the status as a Tax-Exempt Organization of any Member that otherwise has such status;
and
(e)
Before the date of withdrawal, each Member of the Obligated Group consents in writing
to such Member's withdrawal.
Notwithstanding the provisions described in this caption, the Hospital may not be cease to be a Member of
the Obligated Group so long as the Existing Certificates are outstanding. Upon such withdrawal under the foregoing
provisions, the appropriate exhibits of the Master Indenture will be amended to reflect such withdrawal.
General Covenants
Covenants as to Corporate Existence, Maintenance of Properties, and Similar Matters; Right of Contest.
Each Member covenants in the Master Indenture to:
(a)
Except as otherwise expressly provided in the Master Indenture (i) preserve its corporate
or other separate legal existence, (ii) preserve all its rights and licenses to the extent necessary in the
operation of its business and affairs and (iii) be qualified to do business and conduct its affairs in each
jurisdiction where its ownership of Property or the conduct of its business or affairs requires such
qualification; provided that nothing contained in the Master Indenture may be construed to obligate such
Member to retain, preserve or keep in effect the rights, licenses or qualifications no longer used in the
conduct of its business.
(b)
At all times use its Facilities only in furtherance of its lawful corporate purposes and
cause its business to be carried on and conducted and its Property and each part thereof to be maintained,
preserved and kept in good repair, working order and condition and in as safe condition as its operations
will permit and make all necessary and proper repairs (interior and exterior, structural and non-structural,
ordinary as well as extraordinary and foreseen as well as unforeseen), renewals and replacements so that its
operations and business will at all times be conducted in an efficient, proper and advantageous manner;
provided that nothing contained in the Master Indenture may be construed (i) to prevent it from ceasing to
operate any portion of its Property, if in its reasonable judgment (evidenced, for such a cessation other than
in the ordinary course of business, by a determination by its Governing Body) it is advisable not to operate
the same, or if it intends to sell or otherwise dispose of the same and within a reasonable time endeavors to
effect such sale or other disposition, or (ii) to obligate it to retain, preserve, repair, renew or replace any
Property, leases, rights, privileges or licenses no longer used or, in its Governing Body's judgment, useful
in the conduct of its business.
(c)
Pay or cause to be paid (i) all taxes, levies, assessments and charges on account of the
use, occupancy or operation of its Property; and (ii) all taxes, assessments and impositions general and
special, ordinary and extraordinary, of every name and kind, which may be taxed, levied, imposed or
assessed during the term of the Master Indenture upon all or any part of its Property, or its interest or the
interest of any Related Issuer in and to its Property. If under applicable law any such tax, levy, charge, fee,
rate, imposition or assessment may at the taxpayer's option be paid in installments, any Member may
exercise such option.
(d)
Not create or permit to be created or remain and, at its cost and expense, promptly
discharge or terminate all Liens on all or any part of its Property that are not Permitted Encumbrances.
(e)
At its sole cost and expense, promptly comply with all present and future laws,
ordinances, orders, decrees, decisions, rules, regulations and requirements of every duly constituted
governmental authority, commission and court which may be applicable to it or any of its affairs, business,
operations and Property or to the use or manner of use, occupancy or condition of any of its Property.
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(f)
Promptly pay or otherwise satisfy and discharge all of its obligations and Indebtedness
and all demands and claims against it as and when the same become due and payable that if not so paid,
satisfied or discharged would constitute a default or an event of default as described in paragraph(d) under
"—Defaults and Remedies—Defaults" below.
(g)
At all times comply with all terms, covenants and provisions of any Liens at such time
existing upon all or any part of its Property or securing any of its Indebtedness.
(h)
Use its best efforts to maintain the status of its Health Care Facilities (other than those not
currently having such status or not having such status on the date a Person becomes a Member) as
providers of health care services eligible for payment under those third-party payment programs that its
Governing Body determines are appropriate.
(i)
In the case of the Hospital and each Member that is a Tax-Exempt Organization at the
time it becomes a Member, so long as there are any Outstanding Related Bonds, to take no action or suffer
any action to be taken by others, including any action that would result in the alteration or loss of its status
as a Tax-Exempt Organization, that could result in any such Related Bond being declared invalid or result
in the interest on any Related Bond, which is otherwise exempt from federal or state income taxation,
becoming subject to such taxation.
(j)
For the Hospital and each Member that is a Tax-Exempt Organization at the time it
becomes a Member, not distribute any of its revenues, income or profits, whether realized or unrealized, to
any of its members, directors or officers or allow the same to inure to the benefit of any private person,
association or corporation, other than for such Member's lawful corporate purposes, as the case may be, nor
make any distribution that is not permitted by the legislation under which such Member is governed or
which would result in the loss or alteration of its status as a Tax-Exempt Organization.
The foregoing notwithstanding, any Member may (i) cease to be a Tax-Exempt Organization, (ii) take
actions which could result in the alteration or loss of its status as a Tax-Exempt Organization or (iii) distribute its
revenues, income or profits to any of its members, directors or officers or allow the same to inure to the benefit of a
private person, association or corporation if (1) prior thereto there is delivered to the Master Trustee an opinion of
Bond Counsel to the effect that such actions would not adversely affect the validity of any Related Bond, the
exemption from federal or state income taxation of interest payable on any Related Bond otherwise entitled to such
exemption or adversely affect the enforceability of the Master Indenture against any Member and (2) after such
action the Obligated Group could meet the conditions described in paragraph (a) under "—Permitted Additional
Indebtedness" below for the incurrence of one dollar of additional Long-Term Indebtedness.
No Member will be required to pay any tax, levy, charge, fee, rate, assessment or imposition referred to
above, to remove any Lien required to be removed under this caption, pay or otherwise satisfy and discharge its
obligations, Indebtedness (other than any Obligations), demands and claims against it or to comply with any Lien,
law, ordinance, rule, order, decree, decision, regulation or requirement referred to in this caption, so long as such
Member is contesting, in good faith and at its cost and expense, in its own name and behalf, the amount or validity
thereof in an appropriate manner or by appropriate proceedings that will operate during the pendency thereof to
prevent the collection of or other realization upon the tax, levy, charge, fee, rate, assessment, imposition, obligation,
Indebtedness, demand, claim or Lien so contested, and the sale, forfeiture, or loss of all or any part of its Property.
While any such matters are pending, such Member will not be required to pay, remove or cause to be discharged the
tax, levy, charge, fee, rate, assessment, imposition, obligation, Indebtedness, demand, claim or Lien being contested
unless such Member agrees to settle such contest. Each such contest will be promptly prosecuted to final conclusion
(subject to such Member's right to settle such contest), and in any event the Member will, promptly after the final
determination of such contest or settlement thereof, pay and discharge the amounts that will be levied, assessed or
imposed or determined to be payable therein, together with all penalties, fines, interests, costs and expenses thereon
or incurred in connection therewith. The Member engaging in such a contest will give the Master Trustee prompt
written notice of any such contest. Each Member waives, to the extent permitted by law, any right which it may
have to contest any Obligation.
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If the Master Trustee notifies such Member that, in the opinion of Independent Counsel, by nonpayment of
any of the foregoing items all or any substantial part of such Member's Property will be subject to imminent loss or
forfeiture, then such Member will promptly pay all such unpaid items and cause them to be satisfied and discharged.
Insurance. Each Member agrees in the Master Indenture to maintain, or cause to be maintained at its sole
cost and expense, insurance with respect to its Property, the operation thereof and its business against such
casualties, contingencies and risks (including but not limited to public liability and employee dishonesty) and in
amounts not less than is customary for similarly situated corporations engaged in the same or similar activities. The
Obligated Group or any Member may self-insure against any or all risks except for loss of or damage to the
Obligated Group's or the Member's Property, Plant and Equipment. Before any self-insurance is established, an
Insurance Consultant must determine that such self-insurance meets the standards set forth in the first sentence of
paragraph (a) and is prudent under the circumstances.
Rates and Charges. Each Member agrees to operate all of its Facilities on a revenue producing basis and to
charge such fees and rates for its Facilities and services and to exercise such skill and diligence as to provide income
from its Property together with other available funds sufficient to pay promptly all payments of principal and interest
on its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments
required to be made by it under the Master Indenture to the extent permitted by law. Each Member further
covenants and agrees that it will from time to time as often as necessary and to the extent permitted by law, revise its
rates, fees and charges as may be necessary or proper to comply with the provisions described in this paragraph.
The Obligated Group Agent (on behalf of the Obligated Group) covenants and agrees that it will calculate
the Historical Maximum Annual Debt Service Coverage Ratio and the Yearly Coverage (defined below) of the
Combined Group for each Fiscal Year and will deliver to the Master Trustee an Officer’s Certificate of the
Obligated Group Agent (on behalf of the Combined Group) in a form reasonably acceptable to the Master Trustee
stating the Historical Maximum Annual Debt Service Coverage Ratio and the Yearly Coverage for such Fiscal Year.
The Obligated Group, collectively, covenants and agrees to, and to cause their Restricted Affiliates to, fix,
charge, and collect, or cause to be fixed, charged, and collected, for the use of their Facilities and for the services
furnished or to be furnished by them, sufficient to produce in each Fiscal Year Income Available for Debt Service
which is in an amount at least equal to 110% of the Maximum Annual Debt Service Requirement for such Fiscal
Year (referred to in this caption as "Yearly Coverage"), subject to applicable laws or regulations restricting or
limiting the revenues, rates, fees, and charges of any Member of the Combined Group or its health care facilities or
the timing of the receipt of such revenues, rates, fees, and charges.
If for any Fiscal Year the Combined Group's Historical Maximum Annual Debt Service Coverage Ratio is
less than 1.10:1, the Obligated Group will retain a Consultant to make recommendations with respect to the rates,
fees and charges and the methods of operation of the Combined Group and other factors affecting their financial
condition in order to increase the Combined Group's Historical Maximum Annual Debt Service Coverage Ratio to at
least 1.10:1 in future Fiscal Years.
A copy of the Consultant's report and recommendations, if any, will be filed with each Member, the Master
Trustee and each Related Bond Trustee. Each Member will follow, and cause its Restricted Affiliates to follow,
each recommendation of the Consultant applicable to it or its Restricted Affiliates, as applicable, to the extent
feasible (as determined by such Member's Governing Body) and permitted by law. This paragraph may not be
construed to prohibit any Member from serving indigent patients or any other class or classes of patients without
charge or at reduced rates.
The foregoing provisions notwithstanding, if for any Fiscal Year the Combined Group's Historical
Maximum Annual Debt Service Coverage Ratio is less than 1.10:1, the Obligated Group need not retain a
Consultant to make such recommendations if (A) (i) there is filed with the Master Trustee (who will provide a copy
to each Related Bond Trustee) a written report addressed to the Master Trustee of a Consultant that contains such
Consultant's opinion that applicable laws or regulations have prevented the Combined Group from generating
Income Available for Debt Service during such Fiscal Year in an amount sufficient to cause the Historical
Maximum Annual Debt Service Coverage Ratio to equal or exceed 1.10:1, (ii) the report of such Consultant
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indicates that the rates charged by the Combined Group are such that, in the Consultant's opinion, the Combined
Group has generated the maximum amount of Revenues reasonably practicable given such laws or regulations, and
(iii) the Obligated Group's Historical Maximum Annual Debt Service Coverage Ratio for such Fiscal Year was at
least 1.0:1 or (B) (i) the Obligated Group's Days-Cash-On-Hand as of the end of such Fiscal Year was at least equal
to 75 Days-Cash-On-Hand, and (ii) the Combined Group's Historical Maximum Annual Debt Service Ratio was not
less than 1.10:1 for the two immediately preceding consecutive Fiscal Years.
The Obligated Group will not be required to cause the Consultant's report referred to in the preceding
paragraphs to be prepared more frequently than once every two Fiscal Years if at the end of the first of such two
Fiscal Years the Obligated Group Agent provides to the Master Trustee and each Related Bond Trustee an opinion
of Independent Counsel to the effect that the applicable laws and regulations underlying the Consultant's report
covering the previous Fiscal Year have not changed in any material way.
Insurance and Condemnation Proceeds. Amounts received by any Member as insurance proceeds with
respect to any casualty loss or as condemnation awards (or proceeds of a sale under threat of condemnation) may be
applied as the Member may determine, including, without limitation, to pay or prepay Obligations or other
Indebtedness in accordance with its terms, subject to compliance with the provisions of the Master Indenture. If the
amount of such proceeds or awards received with respect to any casualty loss or condemnation exceeds 10% of the
Property Value of the Obligated Group's Property, Plant and Equipment, the Member or Members that owned the
Property subjected to such casualty, loss, condemnation or threatened condemnation, will immediately notify the
Master Trustee and, within one month after the receipt by the Member or Members of the insurance or
condemnation award resulting from the casualty, loss, condemnation or threatened condemnation, deliver to the
Master Trustee the documentation required by the Master Indenture. Each Member agrees that it will use all
proceeds or awards, to the extent permitted by law, only in accordance with the assumptions or the
recommendations described in the documents provided pursuant to the Master Indenture.
Merger, Consolidation, Sale or Conveyance. Each Member agrees that it will not merge into, or
consolidate with, one or more corporations that are not Members, or allow one or more of such corporations to
merge into it, or sell or convey all or substantially all of its Property to any Person who is not a Member, unless:
(1)
Any successor corporation to such Member (including without limitation any purchaser
of all or substantially all of such Member's Property) is a corporation organized and existing under the laws
of the United States of America or one of its states, and has executed and delivered to the Master Trustee an
appropriate Supplemental Master Indenture, satisfactory to the Master Trustee, containing such successor
corporation's agreement to assume, jointly and severally, the obligations to pay the principal of, premium, if
any, and interest on all Obligations and to perform and observe all the covenants and conditions of the
Master Indenture and each Related Loan Document to which such Member is a party;
(2)
Immediately after such merger or consolidation, or such sale or conveyance, no Member
would be in default under any Related Loan Document or the Master Indenture;
(3)
Immediately after such merger or consolidation, or such sale or conveyance, the
conditions described in paragraph (a) under "—Additional Permitted Indebtedness" below would be met for
the incurrence of one dollar of additional Long-Term Indebtedness, assuming that any Indebtedness of any
acquiring, acquired or merged corporation is Indebtedness of such Member and that the Revenues and
Expenses of the Member for the most recent complete Fiscal Year include the Revenues and Expenses of
such other corporation; and
(4)
If all amounts due or to become due on all Related Bonds have not been fully paid to
their holders or fully provided for, there is delivered to the Master Trustee an opinion of Bond Counsel to
the effect that the consummation of such merger, consolidation, sale or conveyance would not adversely
affect the validity of such Related Bonds or the exemption otherwise available from federal or state income
taxation of interest payable on such Related Bonds.
Financial Statements, Etc. Each Member agrees to keep or cause to be kept proper books of records and
accounts in which full, true and correct entries will be made of all dealings or transactions of or in relation to its
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business and affairs under generally accepted accounting principles consistently applied except as may be disclosed
in the notes to the Financial Statements.
No later than 150 days after the last day of each Fiscal Year, the Obligated Group Agent will furnish to
each Related Bond Trustee Financial Statements for such Fiscal Year and a statement from the Accountant
certifying the Financial Statements that they have obtained no knowledge of any default by any Member in the
fulfillment of any of the terms, covenants, provisions or conditions of the Master Indenture in so far as they relate
to accounting and auditing matters, or if such Accountant has obtained knowledge of any such default or defaults,
disclosing and describing in such statement the default or defaults (but such Accountant will not be liable directly
or indirectly to anyone for failure to obtain knowledge of any default).
At the time of delivery of the financial report referred to in the preceding paragraph, the Obligated Group
Agent will furnish to each Related Bond Trustee an Officer's Certificate of the Obligated Group Agent containing
(i) a calculation of the Obligated Group's Historical Maximum Annual Debt Service Coverage Ratio for the
preceding Fiscal Year, and (ii) a statement that no Member is in default in the performance or observance of any
of the terms, covenants, provisions or conditions of the Master Indenture, or if any Member is in default, such
certificate will describe all such defaults.
Each Member also agrees that, within 10 days after the Member's receipt thereof, it will file with the
Obligated Group Agent a copy of each Consultant's report or counsel's opinion required to be prepared under the
Master Indenture. The Obligated Group Agent agrees to furnish to the Master Trustee a copy of each such report or
opinion immediately upon the Obligated Group Agent's receipt thereof.
Permitted Additional Indebtedness. So long as any Obligations are outstanding, no Member may incur any
Additional Indebtedness (whether or not incurred through the issuance of Additional Obligations) other than the
Initial Obligation, except the following:
(a)
Long-Term Indebtedness, if before its incurrence or, if such Long-Term Indebtedness
was incurred under another paragraph in this caption and any Member wishes to have such Indebtedness
classified as having been issued under this paragraph, before such classification, there is delivered to the
Master Trustee any one of the following:
(1)
An Officer's Certificate of the Obligated Group Agent stating that the Obligated
Group's Historical Pro Forma Debt Service Coverage Ratios for each of the two most recent Fiscal
Years preceding the date of delivery of the report for which Financial Statements are available was
not less than 1.35:1 or;
(2)
An Officer's Certificate of the Obligated Group Agent stating that the Obligated
Group's Projected Long-Term Indebtedness Coverage Ratio for each of the two succeeding Fiscal
Years, or if such Indebtedness is being incurred in connection with the financing of Facilities, the
two Fiscal Years succeeding the projected completion date of such Facilities, will not be less than
1.40:1; or
(3)
A written Consultant's report to the effect that the Obligated Group's Projected
Long-Term Indebtedness Coverage Ratio for each of the next two succeeding Fiscal Years or, if
such Indebtedness is being incurred in connection with the financing of Facilities, the two Fiscal
Years succeeding the projected completion date of such Facilities, will not be less than 1.35:1.
(b)
Completion Indebtedness with respect to any Facility, provided the Obligated Group
delivers to the Master Trustee:
(1)
A statement of an Independent Architect setting forth the amount estimated to be
needed to complete the Facility; and
(2)
An Officer's Certificate of a Member stating that the proceeds of such
Completion Indebtedness to be applied to the completion of the Facility, together with a
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reasonable estimate of investment income to be earned on such proceeds and available to pay such
costs, the amount of moneys, if any, committed to such completion from available cash or
marketable securities and reasonably estimated earnings thereon, and federal or state grants
reasonably expected to be available, will be in an amount not less than the amount set forth in the
statement of the Independent Architect referred to in (1).
(c)
Long-Term Indebtedness to refund (whether in advance or otherwise, including without
limitation refunding through the issuance of Cross-over Refunding Indebtedness) any outstanding LongTerm Indebtedness if before its incurrence there is delivered to the Master Trustee:
(1)
An Officer's Certificate of a Member stating that, taking into account the
issuance of the proposed Long-Term Indebtedness and the application of its proceeds and any
other funds available to be applied to such refunding, the Obligated Group's Maximum Annual
Debt Service Requirement for the most recent Fiscal Year preceding the date of delivery of the
certificate for which Financial Statements are available would not be increased by more than 10%;
or
(2)
The conditions described in paragraph (a) above have been satisfied for the
incurrence of one dollar of additional Long-Term Indebtedness, taking into account the proposed
Long-Term Indebtedness and the Long-Term Indebtedness to remain outstanding after the
refunding.
(d)
Short-Term Indebtedness (other than Short-Term Indebtedness incurred under paragraph
(e) below) in a total principal amount that at the time incurred does not, together with the principal amount
of all other Short-Term Indebtedness of the Obligated Group outstanding under this paragraph and the
principal payable on all Long-Term Indebtedness during the next 12 months, excluding such principal to
the extent that amounts are on deposit in an irrevocable escrow and such amounts (including, where
appropriate, the earnings or other increments to accrue on them) must be applied to pay such principal and
such amounts so required to be applied are sufficient to pay such principal, exceed 10% of the Obligated
Group's Revenues for the most recent Fiscal Year for which Financial Statements are available; provided
that for a period of 20 consecutive calendar days in each Fiscal Year the total amount of the Obligated
Group's Short-Term Indebtedness Outstanding described in this paragraph may not be more than 5% of
Obligated Group's Revenues during the most recent Fiscal Year for which Financial Statements are
available. For the purposes of this paragraph, Short-Term Indebtedness will not include overdrafts to banks
to the extent the Obligated Group has immediately available funds sufficient to pay such overdrafts and
such overdrafts are incurred and corrected in the normal course of business.
(e)
Indebtedness having a term of 60 months or less may be incurred in anticipation of
permanent financing of capital improvements for the Obligated Group by the issuance of Long-Term
Indebtedness, if at the time such Indebtedness is incurred an Officer's Certificate of a Member (which will
be accompanied by and based on an opinion of a Consultant knowledgeable in health care finance) is
delivered to the Master Trustee stating that:
(1)
The anticipated permanent financing is reasonably expected to be completed
within the next 60 months; and
(2)
Any one of the incurrence tests set forth in paragraph (a) above is met with
respect to such Indebtedness when it is assumed that such Indebtedness is Long-Term
Indebtedness maturing over 25 years from the date of its issuance, bears interest on the unpaid
principal balance at the Projected Rate and is payable on a level annual debt service basis over a
25-year period.
(f)
Non-Recourse Indebtedness.
(g)
Balloon Indebtedness with a term in excess of 60 months may be incurred (if such
Indebtedness has a term of 60 months or less, the provisions described in paragraph (e) above will apply)
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provided that at the time such Indebtedness is incurred any one of the incurrence tests set forth in paragraph
(a) above can be met using the assumptions described under "—Computation Assumptions" below.
(h)
Variable Rate Indebtedness may be incurred provided that at the time such Variable Rate
Indebtedness is incurred any of the incurrence tests set forth in paragraph (a) above can be met using the
assumptions described under "—Computation Assumptions" below.
(i)
Put Indebtedness may be incurred (1) provided at the time such Indebtedness is incurred
any of the incurrence tests described in paragraph h (a) above can be met using the assumptions described
under "—Computation Assumptions" below, and (2) to the extent a Qualified Liquidity Facility is in effect
with respect to such Put Indebtedness.
(j)
Guaranties may be incurred provided each such Guaranty constitutes:
(1)
A guaranty of Indebtedness of another Member;
(2)
A guaranty relating to an issue of Related Bonds; or
(3)
Any other guaranty of Indebtedness provided that any one of the incurrence tests
set forth in paragraph (a) above can be met if the guaranty is treated as Long-Term Indebtedness
using the assumptions described under "--Computation Assumptions" below.
(k)
Liabilities for contributions to self-insurance or shared or pooled-risk insurance programs
required or permitted to be maintained under the Master Indenture.
(l)
Commitment Indebtedness.
(m)
Indebtedness incurred in the ordinary course of business consisting of accounts payable
or other Indebtedness not incurred or assumed primarily to assure the repayment of money borrowed or
credit extended.
(n)
Indebtedness incurred in connection with any Member's sale of accounts receivable with
recourse (which Indebtedness consists of an obligation to repurchase all or a portion of such accounts
receivable upon certain conditions) or Indebtedness secured by a pledge of any Member's accounts
receivable, provided that the principal amount of such Indebtedness may not exceed 25% of the net value
of the Member's accounts receivable as shown on the most recent Financial Statements.
(o)
Indebtedness not otherwise provided for under any of the preceding paragraphs which,
when added to any other Indebtedness which is not permitted under any of the preceding subsections of this
section, does not exceed 15% of the Revenues of the Obligated Group as shown on the most recent
Financial Statements.
Each Member covenants that Indebtedness of the type permitted to be incurred as described in paragraph
(m) above will not be allowed to become overdue for a period in excess of that which is ordinary for similar
institutions without being contested in good faith and by appropriate proceedings.
Each Member covenants that before, or as soon as reasonably practicable after, the incurrence of
Indebtedness by such Member for money borrowed or credit extended, or the equivalent thereof, after the date of
issuance of the Initial Obligation, it will deliver to the Master Trustee an Officer's Certificate that identifies the
Indebtedness incurred, identifies the paragraph above under which such Indebtedness was incurred, demonstrates
compliance with the provisions of such paragraph and attaches a copy of the instrument evidencing such
Indebtedness; provided that this requirement will not apply to Indebtedness incurred pursuant to paragraphs (k), (m)
and (n) above.
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Computation Assumptions. For purposes of the computation of Debt Service Requirements and the
Additional Indebtedness incurrence tests under the Mater Indenture and generally for any covenants or computations
required by the Master Indenture, the following rules will apply:
(a)
It will be assumed that the debt service on any Balloon Indebtedness in each Fiscal Year
will be the sum of (i) the principal and interest due in that Fiscal Year (except any Fiscal Year in which
more than 25%t of the principal amount of the Indebtedness is due, in which case this amount will be zero)
and (ii) the amount of principal and interest assigned to that Fiscal Year if the amount of principal due in
any Fiscal Year in which more than 25% of the principal amount of the Indebtedness is assumed to be due
on a level annual debt service schedule calculated at the interest rate on the Indebtedness for a period equal
to the longer of (x) 20 years or (y) the period from the incurrence date of the Indebtedness to the date such
principal is due, but in no event longer than 25 years from the incurrence date.
(b)
It will be assumed that the debt service in any Fiscal Year on any Put Indebtedness for
which a Qualified Liquidity Facility is in effect will be the sum of (i) the principal and interest due in that
Fiscal Year and (ii) the amount of principal and interest determined by amortizing from the incurrence date
of the Indebtedness the amount of principal that may become subject to mandatory purchase (including
purchase that may be required at the option of the owner of the Indebtedness) in any Fiscal Year in which
more than 25% of the principal amount of the Indebtedness may be subject to such mandatory purchase on
a level annual debt service schedule calculated at the interest rate on the Indebtedness for a period equal to
the longer of (x) 20 years and (y) the period from the incurrence date to the date such principal may
become subject to such mandatory purchase or redemption, but in no event longer than 25 years from the
incurrence date.
(c)
The interest rate on Variable Rate Indebtedness will be assumed to be the average interest
rate in effect for the 12-month period preceding the date of calculation. However, if the Variable Rate
Indebtedness has not been outstanding for 12 months, the interest rate will be assumed to be the interest
rate in effect on the date of calculation. The debt service on any Variable Rate Indebtedness (that is not
Balloon or Put Indebtedness) in each Fiscal Year will be assumed to be the amount of principal and interest
payable in that Fiscal Year on the Variable Rate Indebtedness determined by amortizing the original
principal amount of the Variable Rate Indebtedness from the date of calculation on a level annual debt
service schedule for a period equal to the period from the date of calculation to the final maturity date of
such Indebtedness calculated at the assumed interest rate as of the calculation date.
(d)
The annual payment obligation on any Indebtedness represented by a Guaranty will, so
long as such Guaranty constitutes a contingent liability, be deemed to be:
(1)
20% of the maximum annual payment obligation under the Guaranty with
respect to the Indebtedness that is guaranteed, unless in such Fiscal Year any Member is required
to make a payment pursuant to the Guaranty; and
(2)
for the Fiscal Year in which a Member is required to make a payment pursuant
to a Guaranty and for each of the two next succeeding Fiscal Years, 100% of the maximum annual
payment obligation under the Guaranty with respect to the guaranteed Indebtedness.
(e)
For any Indebtedness for which a binding commitment, letter of credit or other credit
arrangement providing for the extension of such Indebtedness beyond its original maturity date exists, the
computation of the Debt Service Requirements will, at the option of any Member, be made on the
assumption that such Indebtedness will be amortized in accordance with such credit arrangement.
(f)
To avoid double-counting, Obligations issued to secure Indebtedness permitted to be
incurred as described under "—Permitted Additional Indebtedness" above will not be treated as Additional
Indebtedness.
(g)
No debt service will be deemed payable with respect to Commitment Indebtedness until
such time as funding occurs under the commitment which gave rise to such Commitment Indebtedness.
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From and after such funding, the amount of such debt service will be calculated in accordance with the
actual amount required to be repaid on the Commitment Indebtedness and the interest rate and amortization
schedule applicable to it.
(h)
No Additional Indebtedness will be deemed to arise when Variable Rate Indebtedness is
converted to Indebtedness which bears interest at a fixed rate or the method of computing the variable rate
on such Indebtedness is changed or the terms upon which Indebtedness, if Put Indebtedness, may be or is
required to be tendered for purchase are changed, if such conversion or change is in accordance with the
provisions applicable to such Variable Rate Indebtedness or Put Indebtedness in effect immediately before
such conversion or change and there is delivered to the Master Trustee an Officer's Certificate of a Member
stating that the Obligated Group's Maximum Annual Debt Service Requirement for the most recent Fiscal
Year preceding the date of the delivery of the certificate for which Financial Statements are available
would not be increased by more than 10% as a result of the conversion or change.
(i)
To avoid double-counting, if Indebtedness is incurred under a line of credit, letter of
credit, standby bond purchase agreement or similar liquidity or credit facility established in connection with
the issuance of any other indebtedness or Related Bonds, then Indebtedness will be deemed to include the
amount of the indebtedness or Related Bonds and only the amount of such credit or liquidity facility which
is greater than the amount of such indebtedness or Related Bonds. If such credit or liquidity facility is or
has been used or drawn upon but not applied to retire the indebtedness or Related Bonds, the liability
incurred by such use or draw will be deemed Indebtedness in addition to the amount deemed included
pursuant to the previous sentence. Furthermore, if the credit or liquidity facility is issued as an Additional
Obligation under the Master Indenture, then Indebtedness will be deemed to include the amount of such
credit or liquidity facility and only the amount of the indebtedness or Related Bonds which is greater than
the amount of such credit or liquidity facility.
Sale, Lease or Other Disposition of Property
(a) Except for transfers of cash as described under "—Transfers of Cash" below, transfers
described under "—Merger, Consolidation, Sale or Conveyance" above and the creation of Permitted
Encumbrances, each Member agrees that it will not, and will not permit any Restricted Affiliate to, in any
Fiscal Year, sell, lease or otherwise dispose of Property with a Property Value that, together with the
Property Value of all other Property transferred by Members in transactions other than those described in
paragraphs (a) through (g) below, totals for such Fiscal Year in excess of the greater of (i) $500,000 or (ii)
2% of the Property Value of the Combined Group's Property (the "Permitted Amount"). However, if the
Members have not sold, leased or disposed of, within any Fiscal Year, Property that has a Property Value
aggregating up to the Permitted Amount, the Members may, in succeeding Fiscal Years, sell, lease or
dispose of Property with a Property Value aggregating not more than the Permitted Amount plus any
Permitted Amount from prior Fiscal Years, not to exceed a total of 5% of the Property Value of the
Combined Group's Property.
(b)
Not aggregated in determining whether the Permitted Amount has been exceeded in a
Fiscal Year are sales, leases or other dispositions of Property:
(i)
In return for other Property of equal or greater value and usefulness;
(ii)
To any Person, if before such sale, lease or other disposition there is delivered to
the Master Trustee an Officer's Certificate of a Member stating that such Property has, or within
the next succeeding 24 calendar months is reasonably expected to, become inadequate, obsolete,
worn out, unsuitable, unprofitable, undesirable or unnecessary and the sale, lease or other
disposition thereof will not impair the structural soundness, efficiency or economic value of the
remaining Property;
(iii)
To another Member;
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(iv)
Upon fair and reasonable terms no less favorable to the Member than would be
obtained in a comparable arm's-length transaction, if following such transfer the proceeds received
by the transferor are applied to acquire Property or to prepay the principal of Long-Term
Indebtedness of any Member;
(v)
Sales, leases or other dispositions of Property in the ordinary course of business;
(vi)
To any Person not a Member if before such sale, lease or other disposition there
is delivered to the Master Trustee an Officer's Certificate of a Member demonstrating that the
conditions described paragraph (a) under "—Additional Permitted Indebtedness" above have been
satisfied for the incurrence of one dollar of additional Long-Term Indebtedness, assuming such
sale, lease or disposition occurred at the beginning of the most recent Fiscal Year for which
Financial Statements are available;
(vii)
To a successor corporation pursuant to a merger or consolidation permitted as
described under "—Merger, Consolidation, Sale or Conveyance" above.
(viii)
To any Person of real or personal property received through gifts, grants,
bequests or devises and not used in the provision of health care services.
(c)
Notwithstanding any provision of this caption, nothing in the Master Indenture may be
construed as limiting any Member's ability to purchase or sell Property in the ordinary course of business or
to transfer cash, securities and other investment properties in connection with ordinary investment
transactions where such purchases, sales and transfers are for substantially equivalent value, including
without limitation, the making of loans to Affiliates or other persons under legally binding obligations for
such loans to be repaid or the capitalization of a stock corporation through the purchase of the newly issued
or treasury stock thereof or of a non-stock corporation through a capital contribution thereto.
(d)
No Member of the Obligated Group will:
(i)
permit any of its Restricted Affiliates to issue or sell any shares of stock of such
Restricted Affiliate to any Person (other than Members of the Obligated Group and except for
director’s qualifying shares);
(ii)
sell, transfer, or otherwise dispose of any shares of stock (except to Members of
the Obligated Group) of any Restricted Affiliate, unless (i) all shares of stock of such Restricted
Affiliate owned by the Members of the Obligated Group are sold, transferred, or disposed of, and
(ii) such sale, transfer, or other disposition qualifies as a permitted disposition of Property as
described under this caption; or
(iii)
permit any Restricted Affiliates to consolidate with or merge into any other
corporation or permit any other corporation to consolidate with or merge into any of the Restricted
Affiliates or to transfer all or substantially all of its assets as an entirety to another Person, unless
the successor formed by such consolidation or into which the Restricted Affiliate is merged or
which merges into the Restricted Affiliate or the Person which acquires by conveyance or transfer
the assets of the Restricted Affiliate substantially as an entirety is a Member of the Combined
Group or, if such successor, other corporation, or the transferee is not a member of the Combined
Group, there is delivered to the Master Trustee, prior to such consolidation, merger, sale, or
conveyance, an Officer’s Certificate of the Obligated Group Agent that such consolidation,
merger, or transfer qualifies as a permitted disposition of Property as described under this caption.
Indemnity. In the Master Indenture, each Member agree to pay, will protect, indemnify and save the Master
Trustee and its past, present and future officers, directors, agents, employees and counsel (collectively, the
Indemnified Parties" or individually, and "Indemnified Party") and any person, if any, who "controls" the Master
Trustee within the meaning of Section 15 of the Securities Act of 1933, as amended, harmless from and against any
and all liabilities, losses, damages, costs and expenses (including attorneys' fees and expenses), causes of action,
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suits, claims, demands and judgments of whatsoever kind and nature (including those arising or resulting from any
injury to or death of any person or damage to Property) arising from or in any manner directly or indirectly growing
out of or connected with the matters described in the Master Indenture, including matters related to the Property of
any Member, the Master Indenture, issuance or sale of any Obligations or any Related Bonds.
Limitations on Equity Securities. Each Member agrees not to issue to any Person which is not a Member
any equity securities that rank prior to the shares of any other class of the Member's equity securities as to the
payment of dividends or the distribution of assets in any voluntary or involuntary liquidation.
Transfers of Cash. In the Master Indenture, each Member agrees that it will not transfer, without adequate
consideration, any cash, cash equivalents or marketable investments to any Person other than a Member of the
Obligated Group, provided that so long as the Obligated Group would have at least 75 Days-Cash-on-Hand
following such transfer, such Member may (i) transfer an amount of cash, cash equivalents or marketable
investments in each Fiscal Year with a value of not more than 15% of total cash and board designated funds or (ii)
transfer any amount of cash so long as the Transfer Test is met after subtracting from Income Available for Debt
Service the amount of such transfer. "Transfer Test" means: (i) delivery of certificate of the Obligated Group Agent
to the effect that during each of the two Fiscal Years immediately preceding the proposed transfer for which
Financial Statements are available, the Historical Maximum Annual Debt Service Coverage Ratio, taking into
account such transfer, would not have been reduced by more than 35% and to not less than 2.0x; or (ii) delivery of a
certificate of the Obligated Group Agent to the effect that during each of the two Fiscal Years immediately
preceding the proposed transfer for which Financial Statements are available, the Historical Maximum Annual Debt
Service Coverage Ratio, taking into account such transfer, would not have been reduced by more than 10% and to
not less than 1.75x, or (iii) delivery of a Consultant's opinion and report demonstrating that, taking into account such
transfer, the ratio of projected Income Available for Debt Service to Maximum Annual Debt Service Requirements
for each of the two full Fiscal Years immediately following such transfer will be greater than such project ratio had
such transfer not occurred. Notwithstanding the above, no transfer may occur if there has been a Default on any
Related Bonds or other debt of the Obligated Group (including subordinate debt) or if the Obligated Group is in
violation of any of its covenants in the Master Indenture.
Conditions for Designation of Restricted Affiliates
The Members of the Obligated Group have agreed in the Master Indenture that they will cause each
Restricted Affiliate to comply with certain covenants and obligations as if such Restricted Affiliate were a Member
of the Obligated Group. Initially there are no Restricted Affiliates. Any Affiliate of an Obligated Group Member
that satisfies the definition of “Restricted Affiliate” will become a Restricted Affiliate upon delivery to the Master
Trustee of the following documents:
(a)
An Officer’s Certificate from the Obligated Group Agent to the effect that the Obligated Group
Agent consents to such Person becoming a Restricted Affiliate.
(b)
A written undertaking for the benefit of the Master Trustee duly authorized and executed by such
Affiliate evidencing the agreement of such Affiliate (i) to observe and perform the obligations that the Obligated
Group has covenanted to cause Restricted Affiliates to observe and perform under the Master Indenture, and
(ii) subject to any applicable legal restrictions relating to dispositions of assets by organizations described in Section
501(c)(3) of the Code, that upon the liquidation or dissolution of such Affiliate, all remaining assets of such Affiliate
will be transferred to the Obligated Group Agent or a specified Obligated Group Member.
(c)
undertaking.
Evidence of appropriate action of the Governing Body of such Affiliate authorizing such
(d)
An opinion of Counsel to such Affiliate to the effect that the instrument described in paragraph
(b) above has been duly and validly authorized, executed, and delivered by such Person and constitutes the valid and
binding obligation of such Person, enforceable in accordance with its terms, subject only to and limited by the then
existing law relating to bankruptcy, insolvency, and fraudulent conveyances and other standard and customary legal
exceptions.
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(e)
An Officer’s Certificate from the Obligated Group Agent and the proposed new Restricted
Affiliate to the effect that the designation of the proposed new Restricted Affiliate does not cause any Event of
Default (or any event which, with the passage of time or the giving of notice, or both, would constitute an Event of
Default) under the Master Indenture.
(f) (i) An Officer’s Certificate of the Obligated Group Agent (on behalf of the Combined Group) to the
effect that the Combined Group could meet the conditions described under "—Permitted Additional Indebtedness"
above for the incurrence of one dollar of additional Long-Term Indebtedness, or (ii) a Consultant’s report to the
effect that the forecasted Income Available for Debt Service is not less than 125% of the Debt Service Requirements
for each of the two Fiscal Years succeeding the date of designation of the proposed new Restricted Affiliate or, if
less than 125%, is equal to or greater than the ratio of Income Available for Debt Service to Debt Service
Requirements for the Fiscal Year prior to the date of designation of the proposed new Restricted Affiliate, as shown
for the two succeeding Fiscal Years by forecasted financial statements for each such period, such Consultant’s report
to be accompanied by such forecasted financial statements and by a statement of the relevant assumptions upon
which such forecasted financial statements are based and, if necessary, as shown for the prior Fiscal Year by the
statement of the Accountant furnished to the Master Trustee for such Fiscal Year pursuant to the Master Indenture
or, if not as yet furnished to the Master Trustee, by an Officer’s Certificate of the Obligated Group Agent (on behalf
of the Combined Group) in a form reasonably acceptable to the Master Trustee. For this purpose, Income Available
for Debt Service and Debt Service Requirements will be computed as if the proposed new Restricted Affiliate is not
a Member of the Combined Group for such prior Fiscal Year and is a Member of the Combined Group for such two
succeeding Fiscal Years.
Release of Restricted Affiliates
Any Restricted Affiliate may be released from its obligations and status as a Restricted Affiliate only upon
the following conditions:
(a)
The Master Trustee has received an Officer’s Certificate from the Obligated Group Agent
consenting to the release of such Person from its status as a Restricted Affiliate.
(b) The Obligated Group Agent has delivered to the Master Trustee either (1) an Officer’s Certificate of
the Obligated Group Agent (on behalf of the Combined Group) to the effect that, after giving effect to such release,
the Combined Group could meet the conditions described in "—Permitted Additional Indebtedness" above for the
incurrence of one dollar of additional Long-Term Indebtedness, or (2) a Consultant’s Report to the effect that the
forecasted Income Available for Debt Service is not less than 125% of the Debt Service Requirements of the
Combined Group for each of the two Fiscal Years following the date of release of the Restricted Affiliate or, if less
than 125%, is equal to or greater than the ratio of Income Available for Debt Services Historical to Debt Service
Requirements of the Combined Group for the Fiscal Year prior to the date of release of the Restricted Affiliate, as
shown for the two succeeding Fiscal Years by forecasted financial statements for each such period, such
Consultant’s report to be accompanied by such forecasted financial statements and by a statement of the relevant
assumptions upon which such forecasted financial statements are based and, if necessary, as shown for the prior
Fiscal Year by the statement of the Accountant furnished to the Master Trustee for such Fiscal Year pursuant to the
Master Indenture or, if not as yet furnished to the Master Trustee, by an Officer’s Certificate of the Obligated Group
Agent (on behalf of the Combined Group) in a form acceptable to the Master Trustee. For this purpose, Income
Available for Debt Service and Debt Service Requirements will be computed as if the Restricted Affiliate proposed
to be released is a Member of the Combined Group for such prior Fiscal Year and is not a Member of the Combined
Group for such two succeeding Fiscal Years.
(c) Prior to the cessation of such status, the Master Trustee has received an Officer’s Certificate of the
Obligated Group Agent (on behalf of the Combined Group) to the effect that during the 12-month period ending on
the date of submission of such Officer’s Certificate, no assets of any Member of the Combined Group have been
transferred to the Restricted Affiliate proposed to be released which, if such Affiliate had been a third party at the
time of such transfer, would have caused a violation under "—Sale, Lease or Other Disposition of Property" or "—
Transfers of Cash" above.
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(d)
The Master Trustee has received an Officer’s Certificate of the Person requesting such release
stating that all conditions precedent provided for under the Master Indenture relating to the release of such Person as
a Restricted Affiliate have been complied with and that, were such Person released as a Restricted Affiliate on the
date of such Officer’s Certificate, no Event of Default would then exist under the Master Indenture, nor to such
officer’s knowledge, would there then exist any event which with the passage of time or giving of notice, or both,
would become an Event of Default.
Upon compliance with the conditions described under this caption, the Master Trustee will execute any
documents reasonably requested by the released Person to evidence the termination of such Person’s status as a
Restricted Affiliate under the Master Indenture, and, if applicable, will return any Pledged Shares with respect to
such Restricted Affiliate held by the Master Trustee to the owner thereof free and clear of the lien of the Master
Indenture.
Events of Default and Remedies
Events of Default. Each of the following events is an "Event of Default" under the Master Indenture:
(a)
failure of the Obligated Group to pay any installment of interest or principal, or any
premium, on any Obligation when the same becomes due and payable, whether at maturity, upon any date
fixed for prepayment or by acceleration or otherwise and the continuance of such failure for five days;
provided that if (i) the Obligation or Obligations to which the failure applies secures Related Bonds,
(ii) there has been established under the Related Bond Indenture a reserve or similar fund from which
amounts are to be used to pay the principal of or the interest on the Related Bonds if the Obligated Group
fails to pay the full amount due and payable on the Obligation or Obligations, and (iii) the Related Loan
Document permits the Obligated Group to restore the resulting deficiency in such reserve or similar fund in
installments or otherwise permits it to make such restoration other than immediately, then no Event of
Default will be deemed to occur as described in this paragraph until and unless the deficiency in such
reserve or similar fund is not timely restored in accordance with the provisions of such Related Bond
Indenture or Related Loan Document; or
(b)
failure of any Member to comply with, observe or perform any of the covenants,
conditions, agreements or provisions of the Master Indenture and to remedy such default within 30 days
after written notice thereof to such Member and the Obligated Group Agent from the Master Trustee or the
holders of at least 25% in aggregate principal amount of the outstanding Obligations; provided that if such
default cannot with due diligence and dispatch be wholly cured within 30 days but can be wholly cured, the
failure of the Member to remedy such default within such 30-day period will not constitute a default if the
Member immediately upon receipt of such notice commences with due diligence and dispatch the curing of
such default and, having so commenced the curing of such default, thereafter prosecutes and completes the
same with due diligence and dispatch; or
(c)
any representation or warranty made by any Member in the Master Indenture or in any
statement or certificate furnished to the Master Trustee or the purchaser of any Obligation in connection
with the sale of any Obligation or furnished by any Member pursuant to the Master Indenture proves untrue
in any material respect as of the date of the issuance or making thereof and is not corrected or brought into
compliance within 30 days after written notice thereof to the Obligated Group Agent from the Master
Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Obligations; or
(d)
default in the payment of the principal of, premium, if any, or interest on any
Indebtedness for borrowed money (other than Non-Recourse Indebtedness) of any Member or Restricted
Affiliate, including without limitation any Indebtedness created by any Related Loan Document, as and
when the same becomes due, or an event of default as defined in any mortgage, indenture, loan agreement
or other instrument under which there was issued or incurred, or by which there is secured, any such
Indebtedness (including any Obligation) of any Member, and which default in payment or event of default
entitles its holder to declare or, in the case of any Obligation, to request that the Master Trustee declare,
such Indebtedness due and payable before the date on which it would otherwise become due and payable;
provided that if such Indebtedness is not evidenced by an Obligation or issued, incurred or secured by or
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under a Related Loan Document, a default in payment under the Master Indenture will not constitute an
"event of default" under the Master Indenture unless the unpaid principal amount of such Indebtedness,
together with the unpaid principal amount of all other Indebtedness so in default, exceeds 1% of the
Obligated Group's unrestricted fund balance as shown on or derived from the Obligated Group's then most
recent Financial Statements; or
(e)
any judgment, writ or warrant of attachment or of any similar process is entered or filed
against any Member or against any Member's Property and remains unvacated, unpaid, unbonded, unstayed
or uncontested in good faith for a period of 30 days; provided that none of the foregoing will constitute an
event of default unless the amount of such judgment, writ, warrant of attachment or similar process,
together with the amount of all other such judgments, writs, warrants or similar processes so unvacated,
unpaid, unbonded, unstayed or uncontested, exceeds 1% of the Obligated Group's unrestricted fund balance
as shown on or derived from the Obligated Group's then most recent Financial Statements; or
(f)
any Member admits insolvency or bankruptcy or its inability to pay its debts as they
mature, or is generally not paying its debts as such debts become due, or makes an assignment for the
benefit of creditors or applies for or consents to the appointment of a trustee, custodian or receiver for such
Member, or for the major part of its Property; or
(g)
a trustee, custodian or receiver is appointed for any Member or for the major part of its
Property and is not discharged within 30 days after such appointment; or
(h)
bankruptcy, dissolution, reorganization, arrangement, insolvency or liquidation
proceedings, proceedings under Title 11 of the United States Code, as amended, or other proceedings for
relief under any bankruptcy law or similar law for the relief of debtors are instituted by or against any
Member (other than bankruptcy proceedings instituted by any Member against third parties), and if
instituted against any Member are consented to or are not dismissed, stayed or otherwise nullified within 60
days after such institution; or
(i)
the occurrence of an "event of default" under any Related Bond Indenture or Related
Bond.
Acceleration. If an Event of Default has occurred and is continuing, the Master Trustee may, and if
requested by either the holders of not less than 25% in aggregate principal amount of outstanding Obligations or the
holder of any Accelerable Instrument under which Accelerable Instrument an event of default exists (which event of
default permits its holder to request that the Master Trustee declare such Indebtedness evidenced by an Obligation
due and payable before the date on which it would otherwise become due and payable), will, by notice in writing
delivered to the Obligated Group Agent, declare the entire principal amount of all Obligations outstanding under the
Master Indenture and the interest accrued thereon immediately due and payable, and the entire principal and such
interest will thereupon become immediately due and payable, subject to the provisions of the Master Indenture with
respect to waivers of events of default.
Remedies; Rights of Obligation Holders. Upon the occurrence of any Event of Default, the Master Trustee
may pursue any available remedy including a suit, action or proceeding at law or in equity to enforce the payment
of the principal of, premium, if any, and interest on the Obligations outstanding and any other sums due under the
Master Indenture and may collect such sums as provided by law.
If an Event of Default has occurred, and if it has been requested so to do by either the Holders of 25% or
more in aggregate principal amount of Obligations outstanding or the holder of an Accelerable Instrument upon
whose request the Master Trustee has accelerated the Obligations and if it has been indemnified as provided in the
Master Indenture, the Master Trustee will exercise such one or more of the rights and powers described in this
caption as the Master Trustee deems most expedient in the interests of the Holders of Obligations; provided that the
Master Trustee will have the right to decline to comply with any such request if the Master Trustee is advised by
counsel (who may be its own counsel) that the action so requested may not lawfully be taken or the Master Trustee
in good faith determines that such action would be unjustly prejudicial to the Holders of Obligations not parties to
such request.
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Direction of Proceedings by Holders. The Holders of a majority in aggregate principal amount of the
Obligations Outstanding that have become due and payable in accordance with their terms or have been declared
due and payable under the Master Indenture and have not been paid in full in the case of remedies exercised to
enforce such payment, or the Holders of a majority in aggregate principal amount of the Obligations outstanding in
the case of any other remedy, will have the right, at any time, by an instrument or instruments in writing executed
and delivered to the Master Trustee, to direct the method and place of conducting all proceedings to be taken in
connection with the enforcement of the Master Indenture or for the appointment of a receiver or any other
proceedings under it. Any such direction must be in accordance with the provisions of law and of the Master
Indenture. The Master Trustee may decline to comply with any such direction if the Master Trustee is advised by
counsel (who may be its own counsel) that the action so directed may not lawfully be taken or the Master Trustee in
good faith determines that such action would be unjustly prejudicial to the Holders of the Obligations not parties to
such direction. Pending such direction from the Holders of a majority in aggregate principal amount of the
Obligations outstanding, such direction may be given in the same manner and with the same effect by the Holder of
an Accelerable Instrument upon whose request the Master Trustee has accelerated the Obligations.
The foregoing notwithstanding, the Holders of a majority in aggregate principal amount of the Obligations
outstanding that are entitled to the exclusive benefit of certain security in addition to that intended to secure all or
other Obligations will have the right, at any time, by an instrument or instruments in writing executed and delivered
to the Master Trustee, to direct the method and place of conducting all proceedings to be taken in connection with
the enforcement of the terms and conditions of the Master Indenture, any pertinent Supplemental Master Indenture
or Indentures or any separate security document in order to realize on such security. Any such direction will not be
otherwise than in accordance with the provisions of law and of the Master Indenture.
Appointment of Receivers. Upon the occurrence of an Event of Default, and upon the filing of a suit or
other commencement of judicial proceedings to enforce the rights of the Master Trustee and the holders of
Obligations under the Master Indenture, the Master Trustee will be entitled, as a matter of right, to the appointment
of a receiver or receivers of the rights and properties pledged under the Master Indenture and of the revenues, issues,
payments and profits thereof, pending such proceedings, with such powers as the court making such appointment
confers.
Application of Moneys. All moneys received by the Master Trustee pursuant to any right given or action
taken under the provisions of the Master Indenture (except moneys held for the payment of Obligations called for
prepayment or redemption which have become due and payable), after payment of (i) the cost and expenses of the
proceedings resulting in the collection of such moneys and of the fees of, expenses, liabilities and advances incurred
or made by the Master Trustee, any Related Issuers and any Related Bond Trustees, (ii) the expenses of operating
any Property of the Members of the Obligated Group upon presentation by a Member of the items described in the
Master Indenture or at the Master Trustee's discretion, but only for so long as the Master Trustee determines in its
sole discretion that it is in the best interests of the holders of the Obligations to continue to operate the Property, and
(iii) any amounts due under the Related Tax Documents, will be applied to pay principal or and interest on the
Obligations, at the times and in the manner provided in, the Master Indenture.
The Master Trustee may require, as a condition to the disbursement of any amounts described in the
preceding paragraph to pay the expenses of operating any Property, that a Member submit to the Master Trustee an
invoice or other evidence satisfactory to the Master Trustee that the operating expenses the payment of which is
sought have been incurred and are due and payable and an Officer's Certificate of the Member that such expenses
are ordinary and reasonable expenses of operating the Property.
Notwithstanding the foregoing, any moneys received from security which is not pledged or assigned to the
Master Trustee but which secures a particular Obligation or any Related Bonds will be applied only as provided by
the instrument granting such security or the laws or other contractual obligations governing application of any
money received on account of such security.
Rights and Remedies of Obligation Holders. No Holder of any Obligation will have any right to institute
any suit, action or proceeding in equity or at law for the enforcement of the Master Indenture or for the execution of
any trust created by the Master Indenture or for the appointment of a receiver or any other remedy under the Master
Indenture, unless a default has become an Event of Default and (i) the Holders of 25% or more in aggregate
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principal amount (1) of the Obligations which have become due and payable in accordance with their terms or have
been declared due and payable under the Master Indenture and have not been paid in full in the case of powers
exercised to enforce such payment or (2) the Obligations outstanding in the case of any other exercise of power or
(ii) the holder of an Accelerable Instrument upon whose request the Master Trustee has accelerated the Obligations
has made written request to the Master Trustee, has offered it reasonable opportunity either to proceed to exercise
the powers hereinbefore granted or to institute such action, suit or proceeding in its own name, and has offered to the
Master Trustee indemnity as provided in the Master Indenture, and the Master Trustee thereafter fails or refuses to
exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name. Such
notification, request and offer of indemnity are declared in every case at the Master Trustee's option to be conditions
precedent to the execution of the powers and trusts of the Master Indenture and to any action or cause of action for
the enforcement of the Master Indenture, or for the appointment of a receiver or for any other remedy under the
Master Indenture.
It is understood and intended that no one or more Holders of the Obligations will have any right in any
manner whatsoever to affect, disturb or prejudice the lien of the Master Indenture by its, his or their action or to
enforce any right under the Master Indenture except as therein provided, and that all proceedings at law or in equity
will be instituted, had and maintained as therein provided and for the equal benefit of the Holders of all Obligations
outstanding. Nothing contained in the Master Indenture will, however, affect or impair any Holder's right to enforce
the payment of the principal of, premium, if any, and interest on any Obligation at and after its maturity, or the
Members' obligation to pay the principal, premium, if any, and interest on each of the Obligations to their respective
Holders as expressed in the Obligations.
Waiver of Events of Default; Annulment of Acceleration. In certain circumstances described in the Master
Indenture, including payment of all matured installments of interest upon all Outstanding Bonds and Obligations and
the principal and premium, if any, of all such Outstanding Bonds and Obligations that have become due otherwise
than by acceleration and payment of all sums due under any Obligations other than Bonds or Notes other than by
reason of acceleration, the Master Trustee or the Holders of a majority in aggregate principal amount of all
Obligations then Outstanding and the Holder, if any, of each such instrument who requested the giving of notice of
acceleration, by written notice to the Obligated Group Agent (on behalf of the Obligated Group) may waive all
Events of Default and rescind and annul such declaration and its consequences. The Master Trustee may waive any
Event of Default that in its opinion has been remedied before the entry of final judgment or decree in any suit, action
or proceeding instituted by it under the provisions of the Master Indenture, or before the completion of the
enforcement of any other remedy under the Master Indenture.
Members' Rights of Possession and Use of Property. So long as each Member is in full compliance with
the terms and provisions of the Master Indenture, each Member will be permitted to possess, use and enjoy its
Property and appurtenances thereto free of claims of the Master Trustee.
The Master Trustee
Successor Master Trustee. Any corporation or association into which the Master Trustee may be converted
or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and
assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion,
sale, merger, consolidation or transfer to which it is a party, ipso facto, will be and become successor Master Trustee
and be vested with all of the title to the whole property or trust estate and all the trusts, powers, discretions,
immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument
or any further act, deed or conveyance on the part of and of the parties to the Master Indenture, anything in the
Master Indenture to the contrary notwithstanding.
Corporate Master Trustee Required; Eligibility. There will at all times be a Master Trustee under the
Master Indenture. The Master Trustee will at all times be a bank or trust company organized under the laws of the
United States of America or any of its states, authorized to exercise corporate trust powers, subject to supervision or
examination by federal or state authorities, and having a reported combined capital and surplus of at least
$75,000,000. If at any time the Master Trustee ceases to be eligible as described in this paragraph, it will resign
immediately as provided "—The Master Trustee—Resignation by the Master Trustee" below. No resignation or
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removal of the Master Trustee and no appointment of a successor Trustee will become effective until the successor
Master Trustee has accepted its appointment under the Master Indenture.
Resignation by the Master Trustee. The Master Trustee and any successor Master Trustee may at any time
resign from the trusts created in the Master Indenture by giving 30 days' written notice to the Obligated Group
Agent and by registered or certified mail to each Holder of Obligations outstanding. Such resignation will take
effect at the end of such 30 days or when a successor Master Trustee has been appointed and has assumed the trusts
created in the Master Indenture, whichever is later. Such notice to the Obligated Group Agent may be served
personally or sent by registered or certified mail. The Master Trustee will have the right to petition a court of
competent jurisdiction for the appointment of a successor Master Trustee, and the Master Trustee's resignation will
become effective upon the designation of such successor Master Trustee.
Removal of the Master Trustee. The Master Trustee may be removed at any time (i) by an instrument or
concurrent instruments in writing delivered to the Master Trustee and to the Obligated Group Agent, and signed by
the Holders of a majority in aggregate principal amount of Obligations outstanding or (ii) by the Obligated Group
Agent by notice in writing delivered to the Master Trustee 60 days before the removal date; provided that the
Obligated Group Agent will have no right to remove the Master Trustee so long as the Obligated Group is in default
under the Master Indenture. Nothing in the Master Indenture will relieve the Obligated Group from paying the fees
and expenses incurred by the Master Trustee to the date of removal.
Appointment of Successor Master Trustee by the Obligation Holders; Temporary Master Trustee. If the
Master Trustee resigns or is removed, or is dissolved, or is in the process of dissolution or liquidation, or otherwise
becomes incapable of acting under the Master Indenture, or if it is taken under the control of any public officer or
officers, or of a receiver appointed by a court, a successor may be appointed by the Holders of a majority in
aggregate principal amount of Obligations outstanding, by an instrument or concurrent instruments in writing signed
by such Holders, or by their duly authorized attorneys-in-fact. The foregoing notwithstanding, so long as the
Obligated Group is not in default under the Master Indenture, the Obligated Group will have the right to approve
any such successor trustee. If a successor trustee has not been appointed within 30 days after notice of resignation by
or removal of the Master Trustee, the Obligated Group Agent may appoint a successor to act until such time, if any,
as a successor has been appointed as above provided. The successor so appointed by the Obligated Group Agent
will immediately and without further act be superseded by any successor appointed as above provided.
Supplemental Master Indentures
Supplemental Master Indentures Not Requiring Consent of Obligation Holders. The Members and the
Master Trustee may, without the consent of, or notice to, any of the Obligation holders, amend or supplement the
Master Indenture, for any one or more of the following purposes:
(a)
To cure any ambiguity or defect in or omission from the Master Indenture in such manner
as is not inconsistent with and does not impair the security of the Master Indenture or adversely affect any
Obligation Holder;
(b)
To grant to or confer upon the Master Trustee for the Obligation Holders' benefit any
additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the
Obligation Holders and the Master Trustee, or either of them, to add to the covenants of the Members for
the Obligation Holders' benefit or to surrender any right or power conferred under the Master Indenture
upon any Member;
(c)
collateral;
To assign and pledge under the Master Indenture any additional revenues, properties or
(d)
To permit the qualification of the Master Indenture under the Trust Indenture Act of
1939, as amended, or under any similar federal statute hereafter in effect or to permit the qualification of
any Obligations for sale under the securities laws of any state of the United States;
(e)
To provide for the refunding or advance refunding of any Obligation;
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(f)
To provide for the issuance of Additional Obligations;
(g)
To reflect the admission or withdrawal of a Member to or from the Obligated Group;
(h)
To provide for the issuance of Additional Obligations with original issue discount or
original issue premium, provided such issuance would not materially adversely affect the holders of
Outstanding Obligations;
(i)
To modify, amend, change, or remove any covenant, agreement, term, or provision of the
Master Indenture (other than a modification of the type described below requiring the written consent of all
the affected Holders); provided that all Obligations (other than Obligations securing Related Bonds) and
Related Bonds then Outstanding are secured by credit facilities providing for the payment of the full
amount of the principal and interest to be paid thereon, and each issuer of such credit facilities has
consented to such amendment or supplement; and
(j)
To modify, amend, change, or remove any covenant, agreement, term, or provision of the
Master Indenture (other than a modification of the type described below requiring the written consent of all
the affected Holders); provided that all Obligations (other than Obligations securing Related Bonds) and
Related Bonds are rated by a Rating Agency and are not secured by a credit facility providing for the
payment of the full amount of principal and interest to be paid thereon, and such rating agencies have given
written notification to the Master Trustee that such amendment and supplement will not cause the then
applicable rating on the Obligations or Related Bonds to be reduced or withdrawn.
(k)
To make any other change that, in the Master Trustee's opinion, does not materially
adversely affect any Holders, including without limitation any modification, amendment or supplement to
the Master Indenture or any Supplemental Master Indenture so as to establish or maintain the exemption of
interest on any Related Bonds from federal income taxation under the Code.
Any Supplemental Master Indenture providing for the issuance of Additional Obligations must set forth the
date thereof, the date or dates upon which principal of, premium, if any, and interest on such Obligations will be
payable, the other terms and conditions of such Obligations, the form of such Obligations and the conditions
precedent to the delivery of such Obligations.
Supplemental Master Indentures Requiring Consent of Obligation Holders. In addition to Supplemental
Master Indentures described above, the Holders of a majority in aggregate principal amount of the Obligations that
are outstanding under the Master Indenture at the time of the execution of such Supplemental Master Indenture or, if
fewer than all of the several series of Obligations are affected thereby, the Holders of a majority in aggregate
principal amount of the Obligations of each series affected thereby which are outstanding under the Master
Indenture at the time of the execution of such Supplemental Master Indenture, will have the right, from time to time,
anything contained in the Master Indenture to the contrary notwithstanding, to consent to and approve the execution
by the Members and the Master Trustee of such Supplemental Master Indentures as the Members deem necessary
and desirable to modify, alter, amend, add to or rescind, in any particular, any of the terms or provisions contained in
the Master Indenture or in any Supplemental Master Indenture; provided that nothing contained in the Master
Indenture will permit, or be construed as permitting, (i) an extension of the stated maturity or reduction in the
principal amount of or reduction in the rate or extension of the time of paying of interest on or reduction of any
premium payable on the redemption of, any Obligation, without the consent of the Holder of such Obligation, (ii) a
reduction in the aforesaid aggregate principal amount of Obligations the Holders of which are required to consent to
any such Supplemental Master Indenture, without the consent of the Holders of all the Obligations at the time
outstanding which would be affected by the action to be taken, or (iii) modification of the rights, duties or
immunities of the Master Trustee, without the Master Trustee's written consent.
If at any time the Obligated Group Agent requests the Master Trustee to enter into any such Supplemental
Master Indenture for any of the purposes described in this paragraph, the Master Trustee will, upon being
satisfactorily indemnified for its expenses, cause notice of the proposed execution of such Supplemental Master
Indenture to be mailed by first class mail postage prepaid to each Holder of an Obligation or, if fewer than all of the
series of Obligations are affected thereby, of an Obligation of the series affected thereby. Such notice will briefly
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set forth the nature of the proposed Supplemental Master Indenture and will state that copies of it are on file at the
Master Trustee's principal corporate trust office for inspection by all Obligation Holders. The Master Trustee will
not, however, be subject to any liability to any Obligation Holder by reason of its failure to mail such notice, and
any such failure will not affect the validity of such Supplemental Master Indenture when consented to and approved
as described in this paragraph.
If the Holders of a majority in aggregate principal amount of the Obligations or the Obligations of each
series affected thereby, as the case may be, which are outstanding under the Master Indenture at the time of the
execution of any such Supplemental Master Indenture have consented to and approved the execution thereof as
provided in the Master Indenture, no Holder of any Obligation will have any right to object to any of the terms and
provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution
thereof, or to enjoin or restrain the Master Trustee or the Members from executing the same or from taking any
action pursuant to the provisions thereof.
Upon the execution of any such Supplemental Master Indenture as in this Article permitted and provided,
the Master Indenture will be and be deemed to be modified and amended in accordance therewith.
Satisfaction of the Master Indenture
Defeasance. If the Members pay or provide for the payment of the entire indebtedness on all Obligations
(including any Obligations owned by a Member) outstanding in any one or more of the following ways:
(a)
by paying or causing to be paid the principal of (including redemption premium, if any)
and interest on all Obligations outstanding, as and when the same become due and payable;
(b)
by depositing with the Master Trustee, in trust, at or before maturity, moneys in an
amount sufficient to pay or redeem (when redeemable) all Obligations outstanding (including the payment
of premium, if any, and interest payable on such Obligations to the maturity or redemption date thereof),
provided that such moneys, if invested, must be invested at the direction of the Obligated Group Agent in
Escrow Obligations, in an amount, without consideration of any income or increment to accrue thereon,
sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations
outstanding at or before their respective maturity dates; it being understood that the investment income on
such Escrow Obligations may be used at the direction of the Obligated Group Agent for any other lawful
purpose;
(c)
by delivering to the Master Trustee, for cancellation by it, all Obligations outstanding; or
(d)
by depositing with the Master Trustee, in trust, before maturity, Escrow Obligations in
such amounts as will, together with the income or increment to accrue thereon, without consideration of
any reinvestment thereof, be fully sufficient to pay or redeem (when redeemable) and discharge the
indebtedness on all Obligations outstanding at or before their respective maturity dates, as an Accountant
certifies to the Master Trustee's satisfaction;
and if the Obligated Group also pays or causes to be paid all other sums payable under the Master Indenture by the
Obligated Group and, if any such Obligations are to be redeemed before their maturity, notice of such redemption
has been given under the requirements of the Master Indenture or provisions satisfactory to the Master Trustee has
been made for the giving of such notice, then and in that case (but subject to the provisions regarding Related Bonds
described below in thie caption) the Master Indenture and the estate and rights granted under the Master Indenture
will cease, terminate, and become null and void. Thereupon the Master Trustee will, upon the Obligated Group
Agent's Written Request, and upon receipt by the Master Trustee of an Officer's Certificate from the Obligated
Group Agent and an opinion of Independent Counsel acceptable to the Master Trustee, each stating that in the
opinion of the signers all conditions precedent to the satisfaction and discharge of the Master Indenture have been
complied with, forthwith execute proper instruments acknowledging satisfaction of and discharging the Master
Indenture and the lien thereof. The satisfaction and discharge of the Master Indenture will be without prejudice to
the Master Trustee's rights to charge and be reimbursed by the Obligated Group for any expenditures which it may
thereafter incur in connection herewith. The foregoing notwithstanding, the Obligated Group's liability in respect of
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the Obligations will continue, but the Holders thereof will thereafter be entitled to payment only out of the moneys
or Escrow Obligations deposited with the Master Trustee as aforesaid.
Provision for Payment of a Particular Series of Obligations or Portion Thereof. If the Obligated Group
pays or provides for the payment of the entire indebtedness on all Obligations of a particular series or a portion of
such a series in one of the following ways:
(a)
by paying or causing to be paid the principal of (including redemption premium, if any)
and interest on all Obligations of such series or portion thereof outstanding, as and when the same will
become due and payable;
(b)
by depositing with the Master Trustee, in trust, at or before maturity, moneys in an
amount sufficient to pay or redeem (when redeemable) all Obligations of such series or portion thereof
outstanding (including the payment of premium, if any, and interest payable on such Obligations to the
maturity or redemption date), provided that such moneys, if invested, must be invested at the direction of
the Obligated Group Agent in Escrow Obligations in an amount, without consideration of any income or
increment to accrue thereon, sufficient to pay or redeem (when redeemable) and discharge the indebtedness
on all Obligations of such series or portion thereof outstanding at or before their respective maturity dates;
it being understood that the investment income on such Escrow Obligations may be used at the Obligated
Group Agent's direction for any other lawful purpose;
(c)
by delivering to the Master Trustee, for cancellation by it, all Obligations of such series
or portion thereof outstanding; or
(d)
by depositing with the Master Trustee, in trust, Escrow Obligations in such amounts as
will, together with the income or increment to accrue thereon without consideration of any reinvestment
thereof, be fully sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all
Obligations of such series or portion thereof at or before their respective maturity dates, as an Accountant
certifies to the Master Trustee's satisfaction;
and if the Obligated Group also pays or causes to be paid all other sums payable under the Master Indenture by the
Obligated Group with respect to such series of Obligations or portion thereof, and, if any such Obligations of such
series or portion thereof are to be redeemed before their maturity, notice of such redemption has been given under
the Master Indenture or provisions satisfactory to the Master Trustee has been made for the giving of such notice,
then in that case (but subject to the provisions described under "—Satisfaction of Related Bonds") such Obligations
will cease to be entitled to any lien, benefit or security under the Master Indenture. The Obligated Group's liability
in respect of such Obligations will continue but the Holders thereof will thereafter be entitled to payment (to the
exclusion of all other Obligation Holders) only out of the moneys or Escrow Obligations deposited with the Master
Trustee as aforesaid.
Satisfaction of Related Bonds. Any Obligation that secures a Related Bond or Bonds will not be deemed
paid and will continue to be entitled to the lien, benefit and security of the Master Indenture unless and until such
Related Bond or Bonds cease to be entitled to any lien, benefit or security of the Related Bond Indenture under its
provisions.
Instruments Executed by Holders Bind Future Holders
At any time prior to (but not after) the Master Trustee takes action in reliance upon evidence as provided in
the Master Indenture, the taking of any action by the Holders of the percentage in aggregate principal amount of
Obligations specified in the Master Indenture in connection with such action, any Holder of such an Obligation or
Related Bond that is shown by such evidence to be included in Obligations the Holders of which have consented to
such action may, by filing written notice with the Master Trustee and upon proof of holding as provided in the
Master Indenture, revoke such action so far as concerns such Obligation or Related Bond. Except upon such
revocation any such action taken by the Holder of an Obligation or Related Bond in any direction, demand, request,
waiver, consent, vote or other action of the Holder of such Obligation or Related Bond which by any provision of
the Master Indenture is required or permitted to be given will be conclusive and binding on such Holder and upon all
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future Holders of such Obligation or owners of Related Bond, and of any Obligation or Related Bond issued in lieu
thereof, whether or not any notation in regard thereto is made upon such Obligation or Related Bond. Any action
taken by the Holders of the percentage in aggregate principal amount of Obligations specified in the Master
Indenture in connection with such action will be conclusively binding upon each Member, the Master Trustee and
the Holders of all of such Obligations or owners of Related Bonds.
Unclaimed Moneys
Any moneys the Obligated Group deposits with the Master Trustee under the Master Indenture to redeem
or pay any Obligation under the provisions of the Master Indenture that remain unclaimed by the Holder of the
Obligation for four years after the date fixed for redemption or of maturity, as the case may be, will, if permitted by
law and if the Obligated Group is not at the time to the Master Trustee's knowledge in default under the Master
Indenture, be repaid by the Master Trustee to the Obligated Group Agent upon its Written Request; and thereafter
the Holders of the Obligation will be entitled to look only to the Obligated Group for payment thereof. The
Obligated Group covenants and agrees in the Master Indenture to indemnify and save the Master Trustee harmless
from any and all losses, costs, liability and expense suffered or incurred by the Master Trustee by reason of having
returned any such moneys to the Members as described in this paragraph.
Holidays
If the date for making any payment or the date for performance of any act or the exercising of any right, as
provided in the Master Indenture, is not a Business Day, such payment may be made or act performed or right
exercised on the next Business Day with the same force and effect as if done on the nominal date provided in the
Master Indenture.
SERIES 2010A SUPPLEMENT TO MASTER INDENTURE
So long as the Series 2010A Obligation issued pursuant to the Series 2010A Supplement to Master
Indenture is Outstanding, the Obligated Group covenants in the Series 2010A Supplement Master Indenture that:
(a)
The Obligated Group will maintain a Historical Maximum Annual Debt Service
Coverage Ratio of at least 1.1 to 1.0 on a rolling twelve month basis; and
(b)
The Obligated Group will maintain at least 75 Days Cash on Hand at each January 31 and
July 31.
In addition to the Events of Default set forth in the Master Indenture, the following will each constitute an
Event of Default under the Master Indenture so long as the Series 2010A Obligation is Outstanding:
(1)
The failure of the Hospital to comply with the covenants described in (a) and (b) above.
(2)
One or more ERISA Events will cause any Member of the Obligated Group, in the
reasonable opinion of JPMorgan Chase Bank, N.A. (the “Bank”), to incur any expense, liability or loss in
an amount of at least $5,000,000, in the reasonable opinion of the Bank.
(3)
The Hospital or any ERISA Affiliate incurs any Unfunded Benefit Liabilities with respect
to any Title IV Pension Plan.
(4)
In the reasonable opinion of the Bank, an event has occurred which could reasonably be
expected to have a Material Adverse Effect.
(5)
The provisions of the Master Indenture providing that default in the payment of amounts
due with respect to any Indebtedness will not constitute an Event of Default if the Indebtedness is not an
Obligation or issued, incurred or secured by a Related Loan Document will not apply to a default in the
payment of amounts due with respect to any Derivative Agreement related to the Series 2010A Certificates.
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THE INDENTURE
General Covenants
Payment of Principal, Premium, if any, and Interest. In the Indenture, the Issuer covenants that it will
promptly pay or cause to be paid the principal of, premium, if any, and interest on every Bond at the place, on the
dates, and in the manner provided therein and in said Bonds according to the true intent and meaning thereof, but
solely from the Trust Estate. The principal of, premium, if any, and interest on the Bonds are payable from the Trust
Estate, which is specifically pledged to the payment thereof in the manner and to the extent specified in the
Indenture, and nothing in the Bonds or in the Indenture may to be construed as pledging any other funds or assets of
the Issuer.
Undertaking to Provide Ongoing Disclosure. The Hospital has undertaken to provide ongoing disclosure
for the benefit of the Owners of the Bond pursuant to Section (b)(5)(i) of Securities and Exchange Commission Rule
15c2-12 under the Securities Exchange Act of 1934, as amended (17 CFR Part 240 § 240.15C2-12). Such
provisions will be enforceable by any Owner and the Trustee.
Revenues and Funds
Creation of the Bond Fund. There is created and established with the Trustee under the Indenture a trust
fund to be designated "Hospital Authority of Albany-Dougherty County, Georgia -- Bond Fund, Phoebe Putney
Memorial Hospital," which will be used to pay when due the principal of, premium, if any, and interest on the
Bonds.
Payments into the Bond Fund. There will be deposited into the Bond Fund from time to time all other
moneys received by the Trustee under and pursuant to any of the provisions of the Indenture or the Agreement
which are required to be or which are accompanied by directions that such moneys are to be paid into the Bond
Fund.
Use of Moneys in the Bond Fund. Moneys in the Bond Fund will be used solely for the payment of the
principal of, premium, if any, and interest on the Bonds and for the redemption of the Bonds prior to maturity.
Creation of the Project Fund; Payments into the Project Fund. There is created and established with the
Trustee under the Indenture a trust fund to be designated "Hospital Authority of Albany-Dougherty County, Georgia
– Project Fund, Phoebe Putney Memorial Hospital" and an account therein designated the "Costs of Issuance
Account." There will be deposited into the Project Fund and the Costs of Issuance Account therein from time to
time the following:
(a)
from the initial purchase price of the Bonds, in the Costs of Issuance Account, the amount of
$467,843.19 to be applied to payment of Costs of Issuance of the Bonds;
(b)
from the initial purchase price of the Bonds, into the Project Fund, the balance of the proceeds
from the initial purchase price of the Bonds; and
(c)
all other moneys received by the Trustee under and pursuant to any of the provisions of the
Indenture or the Agreement or by or on behalf of the Hospital which are required to be or which are accompanied by
directions that such moneys are to be paid into the Project Fund or into the Costs of Issuance Account therein.
Disbursements from the Project Fund and the Costs of Issuance Account.
(a)
Upon receipt of a requisition from the Hospital for any disbursement from the Project Fund, the
Trustee will promptly advise the Hospital of the balance on deposit in the Project Fund or Cost of Issuance Account
therein, as appropriate.
(b)
Moneys in the Project Fund and the Costs of Issuance Account therein will be expended in
accordance with the provisions of the Agreement. The Trustee is authorized and directed to make disbursements
contemplated and as required by the Agreement. The Trustee will keep and maintain adequate records pertaining to
the Project Fund and all disbursements therefrom.
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(c)
If as a result of the occurrence of an Event of Default under the Indenture, the Trustee will declare
the unpaid principal balance and accrued interest on the Bonds to be immediately due and payable, the Trustee, upon
the written direction of the Owners of at least a majority in aggregate principal amount of Outstanding Bonds, will
apply all moneys in the Project Fund to the immediate payment of the Bonds, in the same manner as a redemption.
Any such application will reduce and discharge the amount then due and payable on the Bonds to the extent of such
application. The Trustee will promptly notify the Hospital and the Issuer of the amount of such reduction.
(d)
Amounts on deposit in the Costs of Issuance Account on the date that is the six-month anniversary
of the date of issuance of the Bonds will be transferred to the Project Fund.
(e)
Upon the receipt of written notice from the Hospital that the Project has been completed, the
Trustee will (1) transfer any moneys remaining in the Project Fund in excess of amounts retained or set aside to
meet costs not then due and payable or which are being contested to the Bond Fund to pay principal of the Bonds or
(2) if the Hospital shall deliver to the Trustee an opinion of Bond Counsel to the effect that, under existing law, the
application of such moneys to pay interest on the Bonds would not, by itself and without more, adversely affect the
excludability from gross income for federal income tax purposes of interest payable on the Bonds, transfer such
moneys to the Bond Fund to pay interest on the Bonds.
Nonpresentment of Bonds. If any Bond is not presented for payment when the principal thereof becomes
due, either at maturity, or at the date fixed for redemption thereof, or otherwise, if moneys sufficient to pay any such
Bond have been deposited with the Trustee for the benefit of the Owner thereof, all liability of the Issuer to the
Owner thereof for the payment of such Bond will forthwith cease, determine and be completely discharged, and
thereupon it will be the duty of the Trustee to hold such funds, uninvested or invested in Government Obligations
maturing overnight, but in any event without liability for interest thereon, for the benefit of the Owner of such Bond,
which Owner will thereafter be restricted exclusively to such funds for any claim of whatever nature on its part
under this Indenture with respect to such Bond.
Any moneys so deposited with and held by the Trustee not so applied to the payment of Bonds within two
years after the date on which the same have become due will be repaid by the Trustee to the Hospital upon written
direction of a Hospital Representative, and thereafter Owners of Bonds will be entitled to look only to the Hospital
for payment, and then to the extent of the amount so repaid, and all liability of the Trustee with respect to such
money will thereupon cease, and the Hospital will not be liable for any interest thereon and will not be regarded as a
trustee of such money.
Moneys to be Held in Trust. All moneys required to be deposited with or paid to the Trustee for the
account of any fund or account referred to in any provision of the Indenture or the Agreement will be held by the
Trustee in trust, and will, while held by the Trustee, constitute part of the Trust Estate and be subject to the lien and
security interest created by the Indenture, except as otherwise specifically provided in the Indenture.
Repayment to the Hospital from the Bond Fund. Any amounts remaining in the Bond Fund or any other
fund or account created under the Indenture (other than the Rebate Fund) after payment in full of the principal of,
premium, if any, and interest on the Bonds, the fees, charges and expenses of the Trustee and all other amounts
required to be paid under the Indenture, will be paid immediately to the Hospital. Moneys remaining in the Rebate
Fund after all payments to the United States of America required by the terms of the Indenture will also be paid to
the Hospital.
Creation of Rebate Fund; Duties of Trustee; Amounts Held in Rebate Fund. There is created and
established with the Trustee under the Indenture a trust fund to be held in trust to be designated "Hospital Authority
of Albany-Dougherty County, Georgia Rebate Fund -- Phoebe Putney Memorial Hospital, 2012" to be applied as
provided in the Indenture to comply with the rebate provisions of the Code.
Investment of Moneys
(a)
Any moneys held as a part of any fund other than the Bond Fund or the Rebate Fund will be
invested or reinvested by the Trustee, to the extent permitted by law, at the written request of and as directed by a
Hospital Representative, in any of the following qualified investments:
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(i)
Bonds or obligations of the such county, municipal corporation, school district, political
subdivision, authority, or body or bonds or obligations of the State or of other counties, municipal
corporations, and political subdivisions of the State;
(ii)
Bonds or other obligations of the United States or of subsidiary corporations of the
United States Government which are fully guaranteed by such government;
(iii)
Obligations of and obligations guaranteed by agencies or instrumentalities of the United
States Government, including those issued by the Federal Land Bank, Federal Home Loan Bank, Federal
Intermediate Credit Bank, Bank for Cooperatives, and any other such agency or instrumentality now or
hereafter in existence; provided, however, that all such obligations must have a current credit rating from a
nationally recognized rating service of at least one of the three highest rating categories available and have
a nationally recognized market;
(iv)
Bonds or other obligations issued by any public housing agency or municipal corporation
in the United States, which such bonds or obligations are fully secured as to the payment of both principal
and interest by a pledge of annual contributions under an annual contributions contract or contracts with the
United States Government, or project notes issued by any public housing agency, urban renewal agency, or
municipal corporation in the United States which are fully secured as to payment of both principal and
interest by a requisition, loan, or payment agreement with the United States government;
(v)
Certificates of deposit of national or state banks located within the State which have
deposits insured by the Federal Deposit Insurance Corporation and certificates of deposit of federal savings
and loan associations and state building and loan associations located within the State which have deposits
insured by the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or the
Georgia Credit Union Deposit Insurance Corporation, including the certificates of deposit of any bank,
savings and loan association, or building and loan association acting as depositary, custodian, or trustee for
any such bond proceeds. The portion of such certificates of deposit in excess of the amount insured by the
Federal Deposit Insurance Corporation, the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation or the Georgia Credit Union Deposit Insurance Corporation, if any, will be secured
by deposit, with the Federal Reserve Bank of Atlanta, Georgia, or with any national or state bank or federal
savings and loan association or state building and loan or savings and loan association located within the
State or with a trust office within the State, of one or more the following securities in an aggregate principal
amount equal at least to the amount of such excess: direct and general obligations of the State or other
states or of any county or municipal corporation in the State, obligations of the United States or subsidiary
corporations included in paragraph (ii) hereof, obligations of the agencies or instrumentalities of the United
States Government included in paragraph (iii) hereof, or bonds, obligations, or project notes of public
housing agencies, urban renewal agencies, or municipalities included in paragraph (iv) hereof;
(vi)
Securities of or other interests in any no-load, open-end management type investment
company or investment trust registered under the Investment Hospital Act of 1940, as from time to time
amended, or any common trust fund maintained by any bank or trust company which holds such proceeds
as trustee or by an affiliate thereof so long as:
(A)
the portfolio of such investment company or investment trust or common trust
fund is limited to the obligations referenced in paragraphs (ii) and (iii) hereof and repurchase
agreements fully collateralized by any such obligations;
(B)
such investment company or investment trust or common trust fund takes
delivery of such collateral either directly or through an authorized custodian;
(C)
such investment company or investment trust or common trust fund is managed
so as to maintain its shares at a constant net asset value; and
(D)
securities of or other interests in such investment company or investment trust or
common trust fund are purchased and redeemed only through the use of national or state banks
having corporate trust powers and located within the State;
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(vii)
Interest-bearing time deposits, repurchase agreements, reverse repurchase agreements,
rate guarantee agreements or other similar banking arrangements with a bank or trust company having
capital and surplus aggregating at least $50 million or with any government bond dealer reporting to,
trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York having capital
aggregating at least $50 million or with any corporation which is subject to registration with the Board of
Governors of the Federal Reserve System pursuant to the requirements of the Bank Holding Company Act
of 1956, provided that each such interest-bearing time deposit, repurchase agreement , reverse repurchase
agreement, rate guarantee agreement, or other similar banking arrangement will permit the moneys so
placed to be available for use at the time provided with respect to the investment or reinvestment of such
moneys; and
(viii)
and any other investments to the extent at the time permitted by then applicable law for
the investment of public funds; and
(b)
Any moneys held as a part of any account of the Bond Fund or the Rebate Fund will be invested
or reinvested by the Trustee, at the direction of the Hospital, in Government Obligations with such maturities as
required in order to assure full and timely payment of amounts required to be paid from the Bond Fund or the Rebate
Fund, which maturities (in the case of the Bond Fund), in any event, may extend no more than 30 days from the date
of acquisition thereof; provided, that any moneys held pursuant to the provisions of Section 6.06 of the Indenture
either will be held uninvested or will be invested in Government Obligations maturing on the next Business Day.
(c)
The Trustee may make any and all such investments through its own bond or investment
department or the bond or investment department of any bank or trust company under common control with the
Trustee. All such investments will at all times be a part of the fund or account from which the moneys used to
acquire such investments have come and all income and profits on such investments will be credited to, and losses
thereon will be charged against, such fund. All investments under the Indenture will be registered in the name of the
Trustee, as Trustee under the Indenture. All investments under the Indenture will be held by or under the control of
the Trustee. The Trustee will sell and reduce to cash a sufficient amount of investments of funds in any account of
the Bond Fund whenever the cash balance in such account of the Bond Fund is insufficient, together with any other
funds available therefor, to pay the principal of, premium, if any, and interest on the Bonds when due. The Trustee
will not be responsible for any reduction of the value of any investments made in accordance with the directions of
the Hospital or a Hospital Representative or any losses incurred in the sale of such investments.
(d)
The Issuer covenants and certifies to and for the benefit of the Owners of the Bonds from time to
time Outstanding that so long as any of the Bonds remain Outstanding, the Issuer will not direct that moneys on
deposit in any fund or account in connection with the Bonds (whether or not such moneys were derived from the
proceeds of the sale of the Bonds or from any other sources), be used in a manner which will cause the Bonds to be
classified as "arbitrage bonds" within the meaning of Section 148 of the Code. Pursuant to such covenants, the
Issuer obligates itself to comply throughout the term of the Bonds with any request of the Hospital regarding the
requirements of Section 148 of the Code, and any regulations promulgated thereunder.
(e)
Unless an opinion is rendered by Bond Counsel to the effect that the following actions are not
required in order to maintain the exclusion of the interest on the Bonds from gross income for federal income tax
purposes, the Issuer hereby covenants that it will make payments as directed by the Hospital (but only from moneys
provided to the Issuer by or on behalf of the Hospital for such purposes), if any, required to be made to the United
States pursuant to the Code in order to establish or maintain the exclusion of the interest on the Bonds from gross
income for federal income tax purposes.
Discharge of Indenture
If the Issuer pays or causes to be paid, in accordance with the provisions of the Indenture, to the Owners of
the Bonds, the principal of, premium, if any, and interest due or to become due thereon at the times and in the
manner stipulated therein, and if the Issuer is not then in default in any of the other covenants and promises in the
Bonds and in the Indenture expressed as to be kept, performed and observed by it or on its part, and if the Issuer
pays or causes to be paid to the Trustee all sums of money due or to become due according to the provisions hereof,
then these presents and the estate and rights hereby granted will cease, determine and be void, whereupon the
Trustee will cancel and discharge the lien of the Indenture, and execute and deliver to the Issuer such instruments in
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writing as may be requisite to release the lien hereof and reconvey, release, assign and deliver unto the Issuer any
and all of the estate, right, title and interest in and to any and all rights or property conveyed, assigned or pledged to
the Trustee or otherwise subject to the lien of the Indenture, except (i) amounts in any account of the Bond Fund or
Project Fund required to be paid to the Hospital under Section 6.08 hereof, (ii) cash held by the Trustee for the
payment of the principal of, premium, if any, or interest on particular Bonds and (iii) amounts in the Rebate Fund
required to be paid to the United States.
Defeasance of Bonds
Any Bond will be deemed to be paid for all purposes of the Indenture when (a) payment of the principal of
and premium, if any, on such Bond, plus interest thereon to the due date thereof (whether such due date is by reason
of maturity or upon redemption as provided in the Indenture) either (i) have been made or caused to be made in
accordance with the terms thereof, or (ii) have been provided for by irrevocably depositing with the Trustee, in trust
and irrevocably set aside exclusively for such payment, (1) moneys sufficient to make such payment or (2)
Government Obligations maturing as to principal and interest in such amounts and at such times as will insure,
without further investment or reinvestment thereof, the availability of sufficient moneys to make such payment, and
(b) all necessary and proper fees, compensation and expenses of the Trustee and the Issuer pertaining to the Bonds
with respect to which such deposit is made, have been paid or the payment thereof provided for to the satisfaction of
the Trustee. At such time as a Bond is deemed to be paid under the Indenture, such Bond will no longer be secured
by or entitled to the benefits of the Indenture, except for the purposes of any such payment from such moneys or
Government Obligations.
Notwithstanding the foregoing, no deposit under clause (a)(ii) of the immediately preceding paragraph will
be deemed payment of such Bonds as aforesaid until (a) proper notice of redemption of such Bonds has been
previously given in accordance with the Indenture, or in the event said Bonds are not by their terms subject to
redemption within the next 60 days, until the Issuer has given the Trustee, in form satisfactory to the Trustee,
irrevocable instructions to notify, as soon as practicable, the Owners of the Bonds that the deposit required by (a)(ii)
above has been made with the Trustee and that said Bonds are deemed to have been paid in accordance with the
Indenture and stating the maturity or redemption date upon which moneys are to be available for the payment of the
principal of and the applicable redemption premium, if any, on said Bonds, plus interest thereon to the due date
thereof; or (b) the maturity of such Bonds.
Before accepting or using any moneys to be deposited pursuant to this section, the Trustee will require that
the Hospital furnish to it (i) an opinion of Bond Counsel to the effect that such deposit will not adversely affect the
exclusion from gross income for federal income tax purposes of interest on the Bonds and that all conditions under
the Indenture have been satisfied, and (ii) a certificate of an independent certified public accounting firm of national
reputation (a copy of which will be furnished to the rating agency then providing the rating borne by the Bonds) to
the effect that such deposit of moneys or Government Obligations will be sufficient to defease the Bonds as
provided in the Indenture.
The Trustee will be fully protected in relying upon the opinions and certificates required to be furnished to
it under this section in accepting or using any moneys deposited pursuant to the Indenture.
All moneys so deposited with the Trustee as provided in this section may also be invested and reinvested, at
the direction of the Hospital, in noncallable Government Obligations, maturing in the amounts and times as
hereinbefore set forth, and all income from all Government Obligations in the hands of the Trustee pursuant to this
section which is not required for the payment of the Bonds and interest and premium, if any, thereon with respect to
which such moneys have been so deposited will be deposited in the Bond Fund as and when realized and collected
for use and application as are other moneys deposited in the Bond Fund; provided that unless the opinion of Bond
Counsel specifically permits any such reinvestment, the Hospital will furnish to the Trustee an opinion of Bond
Counsel to the effect that such reinvestment will not adversely affect the exclusion from gross income for federal
income tax purposes of interest on the Bonds.
The Issuer has covenanted that no deposit will knowingly be made or accepted and no use knowingly made
of any such deposit which would cause the Bonds to be treated as arbitrage bonds within the meaning of Section 148
of the Code.
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Notwithstanding any provision of the Indenture which may be contrary to the provisions of this section, all
moneys or Government Obligations set aside and held in trust pursuant to the provisions of this section for the
payment of Bonds (including interest and premium thereon, if any) will be applied to and used solely for the
payment of the particular Bonds (including the interest and premium thereon, if any) with respect to which such
moneys or Government Obligations have been so set aside in trust.
Defaults and Remedies
Defaults. If any of the following events occur, it is declared under the Indenture to constitute a "Default":
(a)
Default in the due and punctual payment of interest on any Bond;
(b)
Default in the due and punctual payment of the principal of or premium, if any, on any Bond,
whether at the stated maturity thereof, or upon proceedings for redemption thereof, or upon the maturity thereof by
declaration;
(c)
The occurrence of a Default under the Agreement; and
(d)
Default in the performance or observance of any other of the covenants, agreements or conditions
on the part of the Issuer in the Indenture or in the Bonds contained and failure to remedy the same after notice as
described under "–Notice of Defaults; Opportunity to Cure" below.
Acceleration. Upon the occurrence of any Default as described above, the Trustee may, and at the written
request of the Owners of at least a majority in aggregate principal amount of Outstanding Bonds, the Trustee must,
by notice in writing delivered to the Issuer and the Hospital (or, if the Book Entry System is in effect, the Securities
Depository), declare the principal of all Bonds and the interest accrued thereon to the date of such acceleration
immediately due and payable. Upon any declaration of acceleration under the Indenture, the Trustee will
immediately declare all payments required to be made by the Hospital under the Agreement to be immediately due
and payable. Interest will cease to accrue on the Bonds on the date of declaration of acceleration.
Other Remedies; Rights of Owners of Bonds. Subject to the acceleration provisions described above, upon
the occurrence of a Default, the Trustee may pursue any available remedy at law or in equity to enforce the payment
of the principal of, premium, if any, and interest on the Outstanding Bonds. If a Default has occurred and is
continuing and if requested so to do by the Owners of at least a majority in aggregate principal amount of
Outstanding Bonds and provided the Trustee is indemnified as provided in the Indenture, the Trustee will be
obligated to exercise such one or more of the rights and powers conferred by the Indenture, as the Trustee, being
advised by counsel, deems most expedient in the interests of the Owners of Bonds.
Right of Owners of Bonds to Direct Proceedings. Subject to the acceleration provisions described above,
anything in the Indenture to the contrary notwithstanding, the Owners of at least a majority in aggregate principal
amount of the Outstanding Bonds will have the right, at any time, by an instrument or instruments in writing
executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in
connection with the enforcement of the terms and conditions of the Indenture, or for the appointment of a receiver or
any other proceedings under the Indenture provided that such direction may not be otherwise than in accordance
with the provisions of law and of the Indenture.
Appointment of Receivers. Upon the occurrence of a Default, and upon the filing of a suit or other
commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners of Bonds under the
Indenture, the Trustee will be entitled, as a matter of right, to the appointment of a receiver or receivers of the Trust
Estate and of the revenues, earnings, income, products and profits thereof, pending such proceedings, with such
powers as the court making such appointment confers.
Waiver. Upon the occurrence of a Default, to the extent that such rights may then lawfully be waived,
neither the Issuer nor anyone claiming through or under it, will set up, claim or seek to take advantage of any
appraisement, valuation, stay, extension or redemption laws of any jurisdiction now or hereafter in force, in order to
prevent or hinder the enforcement of the Indenture, and the Issuer, for itself and all who may claim through or under
it, waives, to the extent that it lawfully may do so, the benefit of all such laws.
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Application of Moneys. All moneys received by the Trustee pursuant to any right given or action taken
under the provisions of this Article will, after payment of the costs and expenses of the proceedings resulting in the
collection of such moneys and of the fees, expenses, liabilities and advances owing to or incurred or made by the
Trustee, be deposited in the Bond Fund and the moneys in each account of the Bond Fund will be applied as
provided in the Indenture.
Remedies Vested in Trustee. All rights of action (including the right to file proof of claims) under the
Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or
the production thereof in any trial or other proceeding relating thereto, and any such suit or proceeding instituted by
the Trustee will be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any
Owners of the Bonds, and any recovery of judgment will be for the equal and ratable benefit of the Owners of the
Outstanding Bonds.
Rights and Remedies of Owners of Bonds. No Owner of any Bond will have any right to institute any suit,
action or proceeding at law or in equity for the enforcement of the Indenture or for the execution of any trust created
thereunder or for the appointment of a receiver or any other remedy under the Indenture, unless (subject to the
acceleration provisions described above) (i) a Default has occurred of which the Trustee has been notified or of
which it is deemed to have notice, (ii) the Owners of at least a majority in aggregate principal amount of
Outstanding Bonds has made written request to the Trustee and have offered it reasonable opportunity either to
proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding and has offered to
the Trustee indemnity as provided in the Indenture, and (iii) the Trustee thereafter fails or refuses to exercise the
powers hereinbefore granted, or to institute such action, suit or proceeding. Such notification, request and offer of
indemnity are declared in every case at the option of the Trustee to be conditions precedent to the execution of the
powers and trusts of the Indenture, and to any action or cause of action for the enforcement of the Indenture, or for
the appointment of a receiver or for any other remedy under the Indenture; it being understood and intended that no
one or more Owners of the Bonds have any right in any manner whatsoever to affect, disturb or prejudice the lien of
the Indenture by their action or to enforce any right under the Indenture except in the manner provided in the
Indenture, and that all proceedings at law or equity must be instituted, had and maintained in the manner therein
provided and for the equal and ratable benefit of the Owners of all Outstanding Bonds. However, nothing contained
in the Indenture will affect or impair the right of any Owner of Bonds to enforce the payment of the principal of,
premium, if any, and interest on any Bond at and after the maturity thereof, or the obligation of the Issuer to pay the
principal of, premium, if any, and interest on each of the Bonds to the respective Owners thereof at the time and
place, from the source and in the manner in the Bonds expressed.
Waivers of Default. The Trustee will waive any Default under the Indenture and its consequences and
rescind any declaration of acceleration of principal upon the written request of the Owners of at least a majority in
aggregate principal amount of Outstanding Bonds provided that there will not be waived any Default described in
paragraph (a) or (b) under "–Defaults and Remedies—Defaults" above unless prior to such waiver or rescission, the
Hospital has caused to be paid to the Trustee (i) all arrears of principal and interest (other than principal of or
interest on the Bonds which became due and payable by declaration of acceleration), with interest at the rate then
borne by the Bonds on overdue installments, to the extent permitted by law, and (ii) all fees and expenses of the
Trustee in connection with such Default. In case of any waiver or rescission described above, or in case any
proceeding taken by the Trustee on account of any such Default has been discontinued or concluded or determined
adversely, then and in every such case the Issuer, the Trustee and the Owners of Bonds will be restored to their
former positions and rights under the Indenture, respectively, but no such waiver or rescission will extend to any
subsequent or other Default, or impair any right consequent thereon.
Notice of Defaults; Opportunity to Cure. Anything in the Indenture to the contrary notwithstanding, no
Default under paragraph (d) or (e) under "–Defaults and Remedies—Default" above will be deemed a Default until
notice of such Default has been given to the Issuer and the Hospital by the Trustee or by the Owners of at least a
majority in aggregate principal amount of all Outstanding Bonds, and the Issuer and the Hospital have had 30 days
after receipt of such notice to correct said Default or to cause said Default to be corrected and have not corrected
said Default or caused said Default to be corrected within the applicable period; provided that if said Default is such
that it cannot be corrected within the applicable period, it will not constitute a Default if corrective action is
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instituted by the Issuer or the Hospital within the applicable period and diligently pursued until the Default is
corrected.
Trustee
Successor Trustee. Any corporation or association into which the Trustee may be converted or merged, or
with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a
whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale,
merger, consolidation or transfer to which it is a party, will be and become successor Trustee under the Indenture
vested with all of the title to the Trust Estate and all the trusts, powers, discretions, immunities, privileges and all
other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or
conveyance on the part of any of the parties to the Indenture, anything in the Indenture to the contrary
notwithstanding.
Resignation by the Trustee. The Trustee and any successor Trustee may at any time resign from the trusts
created by the Indenture giving 30 days' notice to the Issuer, the Hospital and the Owner of each Bond. Such
resignation will not take effect (i) until the appointment and acceptance of a successor Trustee or temporary Trustee,
and (ii) payment in full of all fees and expenses and other amounts payable to the Trustee pursuant to the Indenture
and the Agreement.
Removal of the Trustee. The Trustee may be removed at any time by an instrument or concurrent
instruments in writing delivered to the Trustee and to the Issuer and signed by the Owners of at least a majority in
aggregate principal amount of Outstanding Bonds. Such removal will not take effect until (i) the appointment and
acceptance of a successor Trustee or temporary Trustee and (ii) payment in full of all fees and expenses and other
amounts payable to the Trustee pursuant to the Indenture and the Agreement.
Appointment of Successor Trustee by Owners of Bonds. In case the Trustee resigns or is removed, or is
dissolved, or is in the course of dissolution or liquidation, or otherwise becomes incapable of acting under the
Indenture, or in case it is taken under the control of any public officer or officers, or of a receiver appointed by a
court, a successor may be appointed by the Owners of at least a majority in aggregate principal amount of
Outstanding Bonds by an instrument or concurrent instruments in writing signed by such Owners, or by their
attorneys-in-fact duly authorized, a copy of which will be delivered personally or sent by registered mail to the
Issuer and the Hospital. In case of any such vacancy, the Issuer, by an instrument executed by its official who
executed the Bonds or his successor in office, may appoint a temporary successor Trustee to fill such vacancy until a
successor Trustee is appointed by the Owners of Bonds in the manner above provided; and such temporary
successor Trustee so appointed by the Issuer will immediately and without further act be superseded by the Trustee
appointed by the Owners of Bonds. If no successor Trustee has accepted appointment within 60 days after the
Trustee has given notice of resignation to the Issuer and the Owner of each Bond, the Trustee may petition any court
of competent jurisdiction for the appointment of a temporary successor Trustee; provided that any Trustee so
appointed will immediately and without further act be superseded by a Trustee appointed by the Issuer or the
Owners of Bonds as provided above. Every successor Trustee appointed pursuant to the provisions of this section
will be, if there be such an institution willing, qualified and able to accept the trust upon customary terms, a bank
with trust powers or trust company within or without the State, in good standing and having reported capital and
surplus of not less than $50,000,000.
Supplemental Indentures
Supplemental Indentures Not Requiring Consent of Owners of Bonds. The Issuer and the Trustee may,
upon receipt of an opinion of Bond Counsel to the effect that the proposed supplemental indenture will not adversely
affect the excludability of interest on the Bonds from gross income for federal income tax purposes and is authorized
by the Indenture, and without consent of, or notice to, any of the Owners of Bonds, enter into an indenture or
indentures supplemental to the Indenture for any one or more of the following purposes:
(a)
To cure any ambiguity or formal defect or omission in the Indenture;
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(b)
To grant to or confer upon the Trustee for the benefit of the Owners of Bonds any additional
rights, remedies, powers or authorities that may lawfully be granted to or conferred upon the Owners of Bonds or the
Trustee;
(c)
To subject to the Indenture additional revenues, properties or collateral;
(d)
To modify, amend or supplement the Indenture or any indenture supplemental thereof in such
manner as to permit the qualification thereof and thereof under the Trust Indenture Act of 1939, as amended, or any
similar federal statute hereafter in effect or to permit the qualification of the Bonds for sale under the securities laws
of any of the states of the United States of America;
(e)
To evidence the appointment of a separate or Co-Trustee or the succession of a new Trustee;
(f)
To correct any description of, or to reflect changes in, any of the properties comprising the Trust
Estate;
(g)
To make any revisions of the Indenture that is required by Fitch, Moody's or S&P in order to
obtain or maintain an investment grade rating on the Bonds;
(h)
To provide for an uncertificated system of registering the Bonds or to provide for changes to or
from the Book-Entry System; or
(i)
To effect any other change in the Indenture which, in the judgment of the Trustee, is not to the
prejudice of the Trustee or the Owners of Bonds.
If Fitch, S&P and/or Moody's has issued a rating of any of the Bonds, Fitch, S&P and/or Moody's, as the
case may be, must be provided with prior written notice from the Trustee of the proposed amendment, but such
notice will not be a condition of the effectiveness of such amendment.
Supplemental Indentures Requiring Consent of Owners of Bonds. The Owners of not less than a majority
in aggregate principal amount of the Outstanding Bonds have the right, from time to time, anything contained in the
Indenture to the contrary notwithstanding, to consent to and approve the execution by the Issuer and the Trustee of
such other indenture or indentures supplemental to the Indenture as deemed necessary and desirable for the purpose
of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained
in the Indenture or in any supplemental indenture; provided, however, that nothing will permit, or be construed as
permitting, without the consent of the Owners of all Bonds Outstanding, (a) an extension of the maturity of the
principal of, or the interest on, any Bond, or (b) a reduction in the principal amount of, or redemption premium on,
any Bond or the rate of interest thereon, or (c) a privilege or priority of any Bond or Bonds over any other Bond or
Bonds, or (d) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental
indentures or any modifications or waivers of the provisions of the Indenture or the Agreement, or (e) the creation of
any lien ranking prior to or on a parity with the lien of the Indenture on the Trust Estate or any part thereof, except
as hereinbefore expressly permitted, or (f) the deprivation of the Owner of any Outstanding Bond of the lien created
on the Trust Estate pursuant to the Indenture.
If at any time the Issuer requests the Trustee to enter into any such supplemental indenture for any of the
purposes described in the above paragraph, the Trustee will, upon being satisfactorily indemnified with respect to
expenses, cause notice of the proposed execution of such supplemental indenture to be given to the Owners of the
Bonds as provided in the Indenture; provided that prior to the delivery of such notice, the Trustee may require that
an opinion of Bond Counsel be furnished to the effect that the supplemental indenture complies with the provisions
of the Indenture and will not adversely affect the excludability of interest on the Bonds from gross income for
federal income tax purposes. Such notice will briefly set forth the nature of the proposed supplemental indenture
and state that copies thereof are on file at the Principal Office of the Trustee for inspection by all Owners of Bonds.
If, within 60 days or such longer period as is prescribed by the Issuer following such notice, the Owners of not less
than a majority in aggregate principal amount of the Bonds Outstanding (except for those Supplemental Indentures
requiring the consent of the Owners of all Bonds Outstanding as described above) at the time of the execution of any
such supplemental indenture have consented to and approved the execution thereof as provided in the Indenture, no
Owner of any Bond will have any right to object to any of the terms and provisions contained therein, or the
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operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the
Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. Upon
the execution of any such supplemental indenture, the Indenture will be and be deemed to be modified and amended
in accordance therewith.
Consent of the Hospital. Anything in the Indenture to the contrary notwithstanding, a supplemental
indenture will not become effective unless and until the Hospital has consented to the execution and delivery of such
supplemental indenture. In this regard, the Trustee will cause notice of the proposed execution of any such
supplemental indenture together with a copy of the proposed supplemental indenture to be mailed to the Hospital at
least 15 Business Days prior to the proposed date of execution and delivery of any such supplemental indenture.
Amendment of Agreement
Amendments to Agreement Not Requiring Consent of Owners of Bonds. The Issuer and the Trustee may,
upon receipt of an opinion of Bond Counsel to the effect that the proposed amendment will not adversely affect the
excludability of interest on the Bonds from gross income for federal income tax purposes and is authorized by the
Indenture, and without the consent of or notice to the Owners of Bonds, consent to any amendment, change or
modification of the Agreement as may be required (i) by the provisions of the Agreement, (ii) for the purpose of
curing any ambiguity or formal defect or omission in the Agreement, (iii) so as to more precisely identify the
Project, or to substitute or add additional improvements or equipment to the Project or additional rights or interests
in property acquired in accordance with the provisions of the Agreement, (iv) to enter into an indenture or indentures
supplemental to the Indenture, (v) to make any revisions required by Fitch, Moody's and/or S&P in order to obtain
or maintain an investment grade rating on the Bonds, or (vi) in connection with any other change therein which, in
the judgment of the Trustee, is not to the prejudice of the Trustee or the Owners of Bonds.
Amendments to Agreement Requiring Consent of Owners of Bonds. Except for the amendments, changes or
modifications described above, neither the Issuer nor the Trustee will consent to any other amendment, change or
modification of the Agreement without mailing of notice and the written approval or consent of the Owners of at
least a majority in aggregate principal amount of the Outstanding Bonds; provided that the consent of the Owners of
all Bonds Outstanding is required for any amendment, change or modification of the Agreement that would permit
the termination or cancellation of the Agreement or a reduction in or postponement of the payments under the
Agreement or any change in the provisions relating to payment thereunder. If at any time the Issuer and the Hospital
request the consent of the Trustee to any such proposed amendment, change or modification of the Agreement, the
Trustee will, upon being satisfactorily indemnified with respect to expenses, cause notice of such proposed
amendment, change or modification to be given in the same manner as provided with respect to supplemental
indentures; provided, that prior to the delivery of such notice or request, the Trustee and the Issuer may require that
an opinion of Bond Counsel be furnished to the effect that such amendment, change or modification complies with
the provisions of the Indenture and will not adversely affect the excludability of interest on the Bonds from gross
income for federal income tax purposes. Such notice must briefly set forth the nature of such proposed amendment,
change or modification and state that copies of the instrument embodying the same are on file at the Principal Office
of the Trustee for inspection by all Owners of Bonds.
Payments Due on Saturdays, Sundays and Holidays
In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for
redemption or purchase in lieu of redemption of any Bonds is not a Business Day, then payment of principal,
premium, if any, or interest need not be made on such date but may be made on the next succeeding Business Day
with the same force and effect as if made on the date of maturity or the date fixed for purchase or redemption.
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THE AGREEMENT
Agreement to Issue the Bonds;
Application of Bond Proceeds.
In order to provide funds to finance the Project, the Issuer, concurrently with the execution of the
Agreement, will issue, sell, and deliver the Bonds and lend the proceeds thereof to the Hospital by depositing such
proceeds with the Trustee.
Disbursements from the Project Fund
Pursuant to the Indenture, the Issuer has authorized and directed the Trustee to make disbursements from
the Project Fund to pay the Costs of the Project, or to reimburse the Hospital for any Cost of the Project paid by it.
Disbursements from the Project Fund will be made by the Trustee upon receipt of a written requisition for such
payment signed by the Hospital by a Hospital Representative in substantially the form contained in the Agreement.
In making any such payment from the Project Fund or the Costs of Issuance Account therein, the Trustee may rely
on any such requisitions delivered to it pursuant to the Agreement and the Trustee will be relieved of all liability
with respect to making such payments in accordance with such requisitions and such certificates without inspection
of the Project or any other investigation.
Special Arbitrage Certifications
The Hospital and the Issuer have covenanted not to cause or direct any moneys on deposit in any fund or
account to be used in a manner which would cause the Bonds to be classified as "arbitrage bonds" within the
meaning of Section 148 of the Code, and the Hospital certifies and covenants to and for the benefit of the Issuer and
the Owners of the Bonds that so long as there are any Bonds Outstanding, moneys on deposit in any fund or account
in connection with the Bonds, whether such moneys were derived from the proceeds of the sale of the Bonds or from
any other sources, will not be used in a manner which will cause the Bonds to be classified as "arbitrage bonds"
within the meaning of Section 148 of the Code.
Amounts Payable
The Hospital covenants and agrees in the Agreement to repay the loan, as follows: on or before any Interest
Payment Date for the Bonds or any other date that any payment of interest, premium, if any, or principal is required
to be made in respect of the Bonds pursuant to the Indenture, until the principal of, premium, if any, and interest on
the Bonds has been fully paid or provision for the payment thereof has been made in accordance with the Indenture,
in immediately available funds, a sum which, together with any other moneys available for such payment in any
account of the Bond Fund, will enable the Trustee to pay the amount payable on such date as principal of (whether
at maturity or upon redemption or acceleration or otherwise), premium, if any, and interest on the Bonds as provided
in the Indenture. Contemporaneously with the execution and delivery of the Agreement, the Hospital executed and
delivered the Series 2012 Master Note to the Issuer, and the Issuer assigned the Series 2012 Master Note to the
Trustee, which provides for payments which correspond as to time and amount with the payments due on the Bonds;
provided that the Obligated Group will receive a credit against its obligation to pay principal of, premium, if any,
and interest on the Series 2012 Master Note to the extent that funds are on deposit with the Trustee and available to
pay principal of, premium, if any, and interest on the Bonds. If for any reason, amounts paid by the Hospital
together with any other amounts available in the Bond Fund are not sufficient to pay the principal of and interest on
the Bonds when due, the Hospital has agreed to pay the amount required to make up such deficiency. It is
understood and agreed pursuant to the Indenture, that all payments payable by the Hospital as set forth above are
assigned by the Issuer to the Trustee for the benefit of the Owners of the Bonds. The Hospital assents to such
assignment. The Issuer has directed the Hospital and the Hospital has agreed to pay to the Trustee at the Principal
Office of the Trustee all payments payable by the Hospital pursuant to this subsection. The Issuer has delivered the
Series 2012 Master Note to the Trustee, as assignee of the Issuer. The Hospital will also pay the reasonable
expenses of the Issuer related to the issuance of the Bonds and incurred upon the written request of the Hospital.
The Hospital will also pay the reasonable fees and expenses of the Trustee under the Indenture and all other
amounts which may be payable to the Trustee under the Indenture, such amounts to be paid directly to the Trustee
for the Trustee's own account as and when such amounts become due and payable.
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In the event the Hospital fails to make any of the payments described under this caption, the item or
installment so in default will continue as an obligation of the Hospital until the amount in default has been fully
paid, and the Hospital agrees to pay the same with interest thereon, to the extent permitted by law, from the date
when such payment was due, at the rate of interest borne by the Bonds.
Obligations of Hospital Unconditional
The obligations of the Hospital to make the payments described under "–Amounts Payable" above and to
perform and observe the other agreements contained in the Agreement will be absolute and unconditional and are
not subject to any defense or any right of setoff, counterclaim or recoupment arising out of any breach by the Issuer
or the Trustee, of any obligation to the Hospital, whether under the Agreement or otherwise, or out of any
indebtedness or liability at any time owing to the Hospital by the Issuer or the Trustee, and, until such time as the
principal of, premium, if any, and interest on the Bonds have been fully paid or provision for the payment thereof
has been made in accordance with the Indenture, the Hospital (i) will not suspend or discontinue any payments
described under "–Amounts Payable" above, (ii) will perform and observe all other agreements contained in the
Agreement, and (iii) except as otherwise provided in the Agreement, will not terminate the Term of Agreement for
any cause, including, without limiting the generality of the foregoing, failure of the Hospital to complete the
acquisition, construction, improving and equipping of the Project, the occurrence of any acts or circumstances that
may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Project, the
taking by eminent domain of title to or temporary use of any or all of the Project, commercial frustration of purpose,
any change in the tax or other laws of the United States of America or of the State or any political subdivision of
either thereof or any failure of the Issuer or the Trustee to perform and observe any agreement, whether express or
implied, or any duty, liability or obligation arising out of or connected with the Agreement. Nothing contained in
this section may be construed to release the Issuer from the performance of any of the agreements on its part
contained in the Agreement, and in the event the Issuer or the Trustee fails to perform any such agreement on its
part, the Hospital may institute such action against the Issuer or the Trustee as the Hospital may deem necessary to
compel performance so long as such action does not abrogate the obligations of the Hospital contained in the first
sentence of this section.
No Warranty of Condition
or Suitability by Issuer
The Issuer makes no warranty, either express or implied, as to the Project or the condition thereof, or that
the Project will be suitable for the purposes or needs of the Hospital. The Issuer makes no representation or
warranty, express or implied, that the Hospital will have quiet and peaceful possession of the Project. The Issuer
makes no representation or warranty, express or implied, with respect to the merchantability, condition or
workmanship of any part of the Project or its suitability for the Hospital's purposes.
Access to the Project
The Hospital has agreed that the Issuer, the Trustee and their duly authorized agents, attorneys, experts,
engineers, accountants and representatives will have the right to inspect the Project at all reasonable times and on
reasonable notice. The Issuer, the Trustee and their duly authorized agents will also be permitted, at all reasonable
times, to examine the books and records of the Hospital with respect to the Project.
Covenant to Provide Ongoing Disclosure
The Hospital has delivered a Continuing Disclosure Agreement in conjunction with the issuance of the
Bonds. The Hospital agrees that, while the Bonds are Outstanding, it will perform its obligations under the
Continuing Disclosure Agreement or enter into an agreement, which agreement will provide for the dissemination of
the financial statements and notices required by Rule 15c2-12 under the Securities Exchange Act of 1934, as
amended. Notwithstanding any other provision of the Agreement, failure of the Hospital to comply with the
Continuing Disclosure Agreement will not constitute a Default under the Agreement or the Indenture.
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Assignment, Selling and Leasing
The Agreement may be assigned and the Project may be sold or leased, as a whole or in part, with written
notice to, but without the necessity of obtaining the consent of, either the Issuer or the Trustee; provided that no such
assignment, sale or lease, in the opinion of Bond Counsel, results in interest on any of the Bonds becoming
includable in gross income for federal income tax purposes, or otherwise violates any provisions of the Act;
provided further that no such assignment, sale or lease will relieve the Hospital of any of its obligations under the
Agreement.
Release and Indemnification Covenants
The Hospital agrees in the Agreement to indemnify and save the Issuer and the Trustee harmless against
and from all claims by or on behalf of any person, firm, corporation or other legal entity arising from the conduct or
management of, or from any work or thing done on, the Project during the Term of Agreement.
Defaults and Remedies
Defaults. The following will be "Defaults" under the Agreement and the term "Default" will mean,
whenever it is used in the Agreement, any one or more of the following events:
(a)
Failure by the Hospital to pay any amount required to be paid as described under "–Amounts
Payable" above or of the Obligated Group to pay any amount required to be paid under the Series 2012 Master Note.
(b)
Failure by the Hospital to observe and perform any covenant, condition or agreement on its part to
be observed or performed, other than as referred to paragraph (a) above, for a period of 30 days after written notice
specifying such failure and requesting that it be remedied has been given to the Hospital by the Issuer or the Trustee,
unless the Issuer and the Trustee agree in writing to an extension of such time prior to its expiration; provided that if
the failure stated in the notice cannot be corrected within the applicable period, the Issuer and the Trustee will not
unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Hospital
within the applicable period and diligently pursued until such failure is corrected.
(c)
The dissolution or liquidation of the Hospital, except as otherwise authorized by the Agreement,
or the voluntary initiation by the Hospital of any proceeding under any federal or state law relating to bankruptcy,
insolvency, arrangement, reorganization, readjustment of debt or any other form of debtor relief, or the initiation
against the Hospital of any such proceeding which remains undismissed for 60 days, or failure by the Hospital to
promptly have discharged any execution, garnishment or attachment of such consequence as would impair the
ability of the Hospital to carry on its operations at the Project, or assignment by the Hospital for the benefit of
creditors, or the entry by the Hospital into an agreement of composition with its creditors or the failure generally by
the Hospital to pay its debts as they become due.
(d)
The occurrence of a Default under the Indenture.
(e)
The occurrence of an Event of Default under the Master Indenture which results in the
acceleration of all Obligations (as defined in the Master Indenture) issued thereunder.
(f)
Any judgment or order for the payment of money is rendered against the Hospital and the amount
thereof for which the applicable insurance carrier has denied liability exceeds $5,000,000, and either (i) enforcement
proceedings have been commenced by any creditor upon such judgment or order or (ii) there is a period of 30
consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not be in effect.
The provisions of paragraph (b) above are subject to the following limitation: if by reason of force majeure
the Hospital is unable in whole or in part to carry out any of its agreements contained in the Agreement (other than
its obligations described under "–Amounts Payable" above), the Hospital will not be deemed in Default during the
continuance of such inability. The term "force majeure" as used herein means, without limitation, the following:
acts of God; strikes or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the
government of the United States of America or of the State or of any of their departments, agencies or officials, or of
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any civil or military authority; insurrections; riots; landslides; earthquakes; fires; storms; droughts; floods;
explosions; breakage or accident to machinery, transmission pipes or canals; and any other cause or event not
reasonably within the control of the Hospital. The Hospital agrees, however, to remedy with all reasonable dispatch
the cause or causes preventing the Hospital from carrying out its agreement, provided that the settlement of strikes
and other industrial disturbances will be entirely within the discretion of the Hospital and the Hospital will not be
required to settle strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing
party or parties when such course is in the judgment of the Hospital unfavorable to the Hospital.
Remedies on Default. Whenever any Default referred to above has occurred and is continuing, the Trustee,
or the Issuer with the written consent of the Trustee, may take one or any combination of the following remedial
steps:
(a)
If the Trustee has declared the Bonds immediately due and payable pursuant to the Indenture, by
written notice to the Hospital, declare an amount equal to all amounts then due and payable on the Bonds, whether
by acceleration of maturity (as provided in the Indenture) or otherwise, to be immediately due and payable as
liquidated damages under the Agreement and not as a penalty, whereupon the same will become immediately due
and payable;
(b)
Have reasonable access to and inspect, examine and make copies of the books and records and any
and all accounts, data and income tax and other tax returns of the Hospital during regular business hours of the
Hospital if reasonably necessary in the opinion of the Trustee; or
(c)
Take whatever action at law or in equity may appear necessary or desirable to collect the amounts
then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or
covenant of the Hospital under the Agreement.
Any amounts collected pursuant to action taken as described in this subsection will be paid into the Bond
Fund and applied in accordance with the provisions of the Indenture.
Term of Agreement
The Agreement will remain in full force and effect from the date thereof to and including December 1,
2042 or until such time as all of the Bonds and the fees and expenses of the Issuer and the Trustee have been fully
paid or provision made for such payments, whichever is later; provided that the Agreement may be terminated prior
to such date upon redemption or defeasance of the Bonds.
Amendments, Changes and Modifications
Subsequent to the issuance of Bonds and prior to their payment in full (or provision for the payment thereof
having been made in accordance with the provisions of the Indenture), and except as otherwise expressly provided
in the Agreement, the Agreement may not be effectively amended, changed, modified, altered or terminated except
pursuant to the provisions of the Indenture.
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APPENDIX D
FORM OF LEGAL OPINION
The form of Legal Opinion included as this Appendix D has been prepared by McKenna Long & Aldridge
LLP, Atlanta, Georgia, Bond Counsel, and is substantially the form to be given in connection with the delivery of
the Series 2012 Certificates.
December 13, 2012
Hospital Authority of Albany-Dougherty County, Georgia
Albany, Georgia
U.S. Bank National Association, as Trustee
Atlanta, Georgia
$107,900,000
Revenue Anticipation Certificates
(Phoebe Putney Memorial Hospital)
Series 2012
To the Addressees:
We have acted as Bond Counsel in connection with the issuance of the above-referenced revenue
anticipation certificates (the "Series 2012 Certificates") by the Hospital Authority of Albany-Dougherty County,
Georgia (the "Issuer"). The Series 2012 Certificates are being issued pursuant to an Indenture of Trust dated as of
December 1, 2012 (the "Indenture") between the Issuer and U.S. Bank National Association, as trustee (the
"Trustee"). The Series 2012 Certificates bear interest, mature and are subject to exchange, transfer and redemption
at the times, in the manner and on the terms, and contain such other terms and provisions, as are specified in the
Indenture. Capitalized, undefined terms used herein will have the meanings given them in the Indenture.
The proceeds of the Series 2012 Certificates will be loaned by the Issuer to Phoebe Putney Memorial
Hospital, Inc., a Georgia nonprofit corporation (the "Hospital"), pursuant to the terms of a Loan Agreement dated as
of December 1, 2012 (the "Loan Agreement") between the Issuer and the Hospital for the purpose of (1) financing
or reimbursing the Hospital for the costs of adding to, extending, improving and equipping certain health related
facilities of the Hospital and (2) paying certain costs of issuance of the Series 2012 Certificates.
In connection with the issuance of the Series 2012 Certificates, we have examined the following:
(a) a certified copy of the resolution adopted by the Authority on November 8, 2012 in
connection with the issuance by the Authority of the Series 2012 Certificates;
(b) a certified copy of the Master Trust Indenture dated as of March 1, 2002 between the
Hospital and U.S. Bank National Association, as master trustee (the "Master Trustee"), as amended and
supplemented (the “Master Indenture”), including as supplemented by the Series 2012 Supplement to
Master Indenture dated as of December 1, 2012 among the Hospital, Phoebe Putney Health System, Inc.
(the “Health System”) and the Master Trustee;
D-1
December 13, 2012
Page 2
(c) the executed Series 2012 Obligation (the "Series 2012 Obligation") issued pursuant to the
Master Indenture;
(d) executed counterparts of the Indenture and the Loan Agreement;
(e)
a specimen of an authenticated Series 2012 Certificate for each maturity;
(f) a certified copy of the transcript of the validation proceeding pertaining to the Series 2012
Certificates conducted in the Superior Court of Dougherty County, Georgia; and
(g) such other records, documents, instruments, proceedings, statutes and matters of law as we
deem relevant and necessary in rendering this opinion.
We have examined the law, such certified proceedings and other documents and matters as deemed
necessary to render this opinion. In all examinations, we have assumed the genuineness of signatures on original
documents and the conformity to original documents of all copies submitted to us as certified, conformed or
photostatic copies, and as to certificates of public officials, we have assumed the same to have been properly given
and to be accurate. As to questions of fact material to our opinion, we have relied upon (a) representations of the
Issuer and the Hospital, (b) certified proceedings and other certifications of public officials furnished to us, and
(c) certifications by officials of the Issuer and the Hospital, without undertaking to verify the same and without
independent investigation. Based upon the examinations, opinions, certificates and premises referred to above, we
are of the opinion that as of this date:
1.
The Issuer is a public body corporate and politic, created, activated and validly existing under the
Constitution and laws of the State of Georgia, and has all requisite power and authority (a) to issue, sell and deliver
the Series 2012 Certificates, (b) to enter into the Indenture and the Loan Agreement, and (c) to carry out the
transactions contemplated by the Indenture and the Loan Agreement.
2.
Under the Constitution and laws of the State of Georgia, including particularly the Hospital
Authorities Law, Official Code of Georgia Annotated, Section 31-7-70, et seq., as amended, the Indenture and the
Loan Agreement have been authorized by all necessary action on the part of the Issuer, have been executed and
delivered by the Issuer, and, assuming that they are the respective legal, valid, binding and enforceable obligations
of the other parties thereto, constitute legal, valid, binding and enforceable obligations of the Issuer, except that the
enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting creditors' rights generally and principles of equity applicable to the availability of specific performance or
other equitable relief.
3.
The Series 2012 Certificates have been duly authorized and executed by the Issuer and delivered
to the Trustee for authentication, and, assuming that the Series 2012 Certificates have been duly authenticated by the
Trustee, are valid and binding limited obligations of the Issuer, except that the rights of the owners of the Series
2012 Certificates and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforcement of creditors' rights generally and principles of equity
applicable to the availability of specific performance or other equitable relief.
4.
The Series 2012 Certificates and the interest thereon are limited obligations of the Issuer, payable
solely from and secured by the revenues, receipts and security pledged therefor in the Indenture. Neither the State of
Georgia nor any political subdivision thereof, including the City of Albany, Georgia and Dougherty County,
Georgia, will in any event be liable for the payment of the principal of or interest on the Series 2012 Certificates or
for the performance of any pledge, obligation or agreement of any kind whatsoever of the Issuer, and none of the
Series 2012 Certificates or any of the Issuer's agreements or obligations may be construed to constitute an
indebtedness of or a pledge of the faith and credit of or a loan of the credit of any of the foregoing within the
meaning of any constitutional or statutory provision whatsoever.
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December 13, 2012
Page 3
5.
The Series 2012 Certificates have been issued in accordance with the terms and provisions of the
Master Indenture and constitute Related Bonds thereunder. Pursuant to the Master Indenture, the Trustee, as the
holder of the Series 2012 Obligation, is entitled to the protection of the covenants, restrictions and other obligations
of the Obligated Group under the Master Indenture. The Master Indenture creates a legal, valid and binding pledge
of Gross Receipts as provided therein. Capitalized terms are used in this paragraph with the meanings given them in
the Master Indenture.
6.
Under existing laws, regulations, rulings and judicial decisions and other authorities, interest on
the Series 2012 Certificates (including any accrued original issue discount) (a) is excludable from the gross income
of recipients thereof for federal income tax purposes and (b) is not an item of tax preference for purposes of the
federal alternative minimum tax imposed on individuals and corporations; provided, however, that interest on the
Series 2012 Certificates is included in the adjusted current earnings for purposes of the alternative minimum tax on
certain corporations (including entities treated as corporations under the Internal Revenue Code of 1986, as
amended). No opinion is expressed regarding any other federal tax consequences arising with respect to the Series
2012 Certificates.
7.
The interest payable on the Series 2012 Certificates is exempt from State of Georgia income
taxation; provided, however, that the Series 2012 Certificates and the interest thereon may be included in the
measure of State of Georgia estate and inheritance taxes and certain State of Georgia corporate excise and franchise
taxes.
The opinions set forth in paragraph 6 above assume and are given in reliance upon full and continuing
compliance by the Issuer and the Hospital with the covenants regarding federal tax law in the Indenture and the
Loan Agreement and the tax regulatory documents executed by the Issuer and the Hospital at the time of issuance of
the Series 2012 Certificates. Failure to comply continuously with such covenants could cause interest on the Series
2012 Certificates to be included in gross income of the recipients retroactive to the date of issue of the Series 2012
Certificates.
Although interest on the Series 2012 Certificates is excludable from gross income for federal income tax
purposes, the accrual or receipt of interest on the Series 2012 Certificates may otherwise affect the federal income
tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient's particular
tax status or other items of income or deduction. Purchasers of the Series 2012 Certificates, particularly purchasers
that are corporations (including S corporations and foreign corporations operating branches in the United States),
property or casualty insurance companies, banks, thrifts or other financial institutions or certain recipients of Social
Security or Railroad Retirement benefits, are advised to consult their tax advisors as to the tax consequences of
purchasing or holding the Series 2012 Certificates. We express no opinion regarding such consequences.
In rendering this opinion, we have relied, with your permission, upon (A) the opinion of Perry & Walters,
LLP, Albany, Georgia, counsel to the Issuer, dated the date hereof with respect to (a) the creation, activation and
existence of the Issuer and (b) the due authorization, execution and delivery by the Issuer of the Series 2012
Certificates, the Indenture and the Loan Agreement and (B) the opinions of Thomas S. Chambless, General Counsel
to the Hospital and the Health System, and Baudino Law Group, Des Moines , Iowa, special counsel to the Hospital
and the Health System, each dated the date hereof with respect to the matters contained therein.
Very truly yours,
MCKENNA LONG & ALDRIDGE LLP
D-3
APPENDIX E
FORM OF DISCLOSURE DISSEMINATION AGENT AGREEMENT
This Disclosure Dissemination Agent Agreement (the “Disclosure Agreement”), dated as of December 1,
2012, is executed and delivered by Phoebe Putney Memorial Hospital, Inc. (the “Hospital”), on behalf of itself and
Phoebe Putney Health System, Inc. (the “Health System” and collectively with the Hospital, the “Obligated Group”)
and by Digital Assurance Certification, L.L.C., as exclusive Disclosure Dissemination Agent (the “Disclosure
Dissemination Agent” or “DAC”) for the benefit of the Holders (hereinafter defined) of the Bonds (hereinafter
defined) and in order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule
15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the
same may be amended from time to time (the “Rule”).
The services provided under this Disclosure Agreement solely relate to the execution of instructions
received from the Obligated Group through use of the DAC system and do not constitute “advice” within the
meaning of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). DAC will not provide any
advice or recommendation to the Obligated Group or anyone on the Obligated Group’s behalf regarding the “issuance
of municipal securities” or any “municipal financial product” as defined in the Act and nothing in this Disclosure
Agreement shall be interpreted to the contrary.
SECTION 1.
Definitions. Capitalized terms not otherwise defined in this Disclosure Agreement shall
have the meaning assigned in the Rule or, to the extent not in conflict with the Rule, in the Official Statement
(hereinafter defined). The capitalized terms shall have the following meanings:
“Annual Filing Date” means the date, set in Sections 2(a) and 2(f), by which the Annual Report is to be filed
with the MSRB.
“Annual Financial Information” means annual financial information as such term is used in paragraph
(b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Agreement.
“Annual Report” means an Annual Report described in and consistent with Section 3 of this Disclosure
Agreement.
“Audited Financial Statements” means the financial statements (if any) of the Hospital System for the prior
fiscal year, certified by an independent auditor as prepared in accordance with generally accepted accounting
principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b)
of this Disclosure Agreement.
“Bonds” means the bonds as listed on the attached Exhibit A, with the 9-digit CUSIP numbers relating
thereto.
“Certification” means a written certification of compliance signed by the Disclosure Representative stating
that the Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice,
Voluntary Event Disclosure or Voluntary Financial Disclosure delivered to the Disclosure Dissemination
Agent is the Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice,
Voluntary Event Disclosure or Voluntary Financial Disclosure required to be submitted to the MSRB under
this Disclosure Agreement. A Certification shall accompany each such document submitted to the
Disclosure Dissemination Agent by the Obligated Group and include the full name of the Bonds and the 9digit CUSIP numbers for all Bonds to which the document applies.
“Disclosure Dissemination Agent” means Digital Assurance Certification, L.L.C, acting in its capacity as
Disclosure Dissemination Agent hereunder, or any successor Disclosure Dissemination Agent designated in
writing by the Obligated Group pursuant to Section 9 hereof.
“Disclosure Representative” means the Chief Financial Officer of the Hospital or his or her designee, or
such other person as the Obligated Group shall designate in writing to the Disclosure Dissemination Agent
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from time to time as the person responsible for providing Information to the Disclosure Dissemination
Agent.
“Failure to File Event” means the Obligated Group’s failure to file an Annual Report on or before the
Annual Filing Date.
“Force Majeure Event” means: (i) acts of God, war, or terrorist action; (ii) failure or shut-down of the
Electronic Municipal Market Access system maintained by the MSRB; or (iii) to the extent beyond the
Disclosure Dissemination Agent’s reasonable control, interruptions in telecommunications or utilities
services, failure, malfunction or error of any telecommunications, computer or other electrical, mechanical
or technological application, service or system, computer virus, interruptions in Internet service or telephone
service (including due to a virus, electrical delivery problem or similar occurrence) that affect Internet users
generally, or in the local area in which the Disclosure Dissemination Agent or the MSRB is located, or acts
of any government, regulatory or any other competent authority the effect of which is to prohibit the
Disclosure Dissemination Agent from performance of its obligations under this Disclosure Agreement.
“Holder” means any person (a) having the power, directly or indirectly, to vote or consent with respect to, or
to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or
other intermediaries) or (b) treated as the owner of any Bonds for federal income tax purposes.
“Information” means, collectively, the Annual Reports, the Audited Financial Statements (if any), the Notice
Event notices, the Failure to File Event notices, the Voluntary Event Disclosures and the Voluntary
Financial Disclosures.
“MSRB” means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of
the Securities Exchange Act of 1934.
“Notice Event” means any of the events enumerated in paragraph (b)(5)(i)(C) of the Rule and listed in
Section 4(a) of this Disclosure Agreement.
“Obligated Person” means any person, including the Obligated Group, who is either generally or through an
enterprise, fund, or account of such person committed by contract or other arrangement to support payment
of all, or part of the obligations on the Bonds (other than providers of municipal bond insurance, letters of
credit, or other liquidity facilities), as shown on Exhibit A.
“Official Statement” means that Official Statement prepared by the Obligated Group in connection with the
Bonds, as listed on Appendix A.
“Quarterly Filing Date” means the date, set in Sections 2(b) and 2(f), by which the Quarterly Report is to be
filed with the MSRB.
“Quarterly Financial Information” means annual financial information as such term is used and specified in
Section 3(a) of this Disclosure Agreement.
“Quarterly Report” means a Quarterly Report described in and consistent with Section 3 of this Disclosure
Agreement.
“Trustee” means the institution, if any, identified as such in the document under which the Bonds were
issued.
“Voluntary Event Disclosure” means information of the category specified in any of subsections (e)(vi)(1)
through (e)(vi)(11) of Section 2 of this Disclosure Agreement that is accompanied by a Certification of the
Disclosure Representative containing the information prescribed by Section 7(a) of this Disclosure
Agreement.
“Voluntary Financial Disclosure” means information of the category specified in any of subsections
(e)(vii)(1) through (e)(vii)(9) of Section 2 of this Disclosure Agreement that is accompanied by a
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Certification of the Disclosure Representative containing the information prescribed by Section 7(b) of this
Disclosure Agreement.
SECTION 2.
Provision of Annual and Quarterly Reports.
(a)
The Obligated Group shall provide, annually, an electronic copy of the Annual Report and
Certification to the Disclosure Dissemination Agent, together with a copy for the Trustee, not later than the Annual
Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure
Dissemination Agent shall provide an Annual Report to the MSRB not later than one hundred fifty (150) days after
the end of each fiscal year of the Obligated Group, commencing December 31, 2013. Such date and each anniversary
thereof is the Annual Filing Date. The Annual Report may be submitted as a single document or as separate
documents comprising a package, and may cross-reference other information as provided in Section 3 of this
(b)
The Obligated Group shall provide, quarterly, an electronic copy of the Quarterly Report to the
Disclosure Dissemination Agent, together with a copy for the Trustee, not later than the Quarterly Filing Date.
Promptly upon receipt of an electronic copy of the Quarterly Report, the Disclosure Dissemination Agent shall
provide a Quarterly Report to the MSRB not later than sixty (60) days after the end of each fiscal quarter of the
Obligated Group, commencing January 1, 2013. Such date and each April 1, July 1, October 1 and January 1
thereafter is the Quarterly Filing Date. The Quarterly Report may be submitted as a single document or as separate
documents comprising a package, and may cross-reference other information as provided in Section 3 of this
(c)
If the Disclosure Dissemination Agent has not received an Annual Report and Certification or
Quarterly Report by 6:00 p.m. Eastern time on the Annual Filing Date or Quarterly Filing Date, as applicable (or, if
such Annual Filing Date or Quarterly Filing Date falls on a Saturday, Sunday or holiday, then the first business day
thereafter) for the Annual Report, a Failure to File Event shall have occurred and the Obligated Group irrevocably
directs the Disclosure Dissemination Agent to immediately send a notice to the MSRB in substantially the form
attached as Exhibit B without reference to the anticipated filing date for the Annual Report, accompanied by a cover
sheet completed by the Disclosure Dissemination Agent in the form set forth in Exhibit C-1.
(d)
If Audited Financial Statements of the Obligated Group are prepared but not available prior to the
Annual Filing Date, the Obligated Group shall, when the Audited Financial Statements are available, provide in a
timely manner an electronic copy to the Disclosure Dissemination Agent, accompanied by a Certification, together
with a copy for the Trustee, for filing with the MSRB.
(e)
The Disclosure Dissemination Agent shall:
(i)
verify the filing specifications of the MSRB each year prior to the Annual Filing Date;
(ii)
upon receipt, promptly file each Annual Report received under Sections 2(a) and 2(b) with
the MSRB;
(iii)
upon receipt, promptly file each Audited Financial Statement received under Section 2(d)
with the MSRB;
(iv)
upon receipt, promptly file the text of each Notice Event received under Sections 4(a) and
4(b)(ii) with the MSRB, identifying the Notice Event as instructed by the Obligated Group
pursuant to Section 4(a) or 4(b)(ii) (being any of the categories set forth below) when
filing pursuant to Section 4(c) of this Disclosure Agreement:
1.
“Principal and interest payment delinquencies;”
2.
“Non-Payment related defaults, if material;”
3.
“Unscheduled draws on debt service reserves reflecting financial difficulties;”
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4.
“Unscheduled draws on credit enhancements reflecting financial difficulties;”
5.
“Substitution of credit or liquidity providers, or their failure to perform;”
6.
“Adverse tax opinions, IRS notices or events affecting the tax status of the
security;”
7.
“Modifications to rights of securities holders, if material;”
8.
“Bond calls, if material;”
9.
“Defeasances;”
10.
“Release, substitution, or sale of property securing repayment of the securities, if
material;”
11.
“Rating changes;”
12.
“Tender offers;”
13.
“Bankruptcy, insolvency, receivership or similar event of the obligated person;”
14.
“Merger, consolidation, or acquisition of the obligated person, if material;” and
15.
“Appointment of a successor or additional trustee, or the change of name of a
trustee, if material;”
(v)
upon receipt (or irrevocable direction pursuant to Section 2(c) of this Disclosure
Agreement, as applicable), promptly file a completed copy of Exhibit B to this Disclosure
Agreement with the MSRB, identifying the filing as “Failure to provide annual financial
information as required” when filing pursuant to Section 2(b)(ii) or Section 2(c) of this
Disclosure Agreement;
(vi)
upon receipt, promptly file the text of each Voluntary Event Disclosure received under
Section 7(a) with the MSRB, identifying the Voluntary Event Disclosure as instructed by
the Obligated Group pursuant to Section 7(a) (being any of the categories set forth below)
when filing pursuant to Section 7(a) of this Disclosure Agreement:
1.
“amendment to continuing disclosure undertaking;”
2.
“change in obligated person;”
3.
“notice to investors pursuant to bond documents;”
4.
“certain communications from the Internal Revenue Service;”
5.
“secondary market purchases;”
6.
“bid for auction rate or other securities;”
7.
“capital or other financing plan;”
8.
“litigation/enforcement action;”
9.
“change of tender agent, remarketing agent, or other on-going party;”
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(vii)
(viii)
10.
“derivative or other similar transaction;” and
11.
“other event-based disclosures;”
upon receipt, promptly file the text of each Voluntary Financial Disclosure received under
Section 7(b) with the MSRB, identifying the Voluntary Financial Disclosure as instructed
by the Obligated Group pursuant to Section 7(b) (being any of the categories set forth
below) when filing pursuant to Section 7(b) of this Disclosure Agreement:
1.
“quarterly/monthly financial information;”
2.
“change in fiscal year/timing of annual disclosure;”
3.
“change in accounting standard;”
4.
“interim/additional financial information/operating data;”
5.
“budget;”
6.
“investment/debt/financial policy;”
7.
“information provided to rating agency, credit/liquidity provider or other third
party;”
8.
“consultant reports;” and
9.
“other financial/operating data.”
provide the Obligated Group evidence of the filings of each of the above when made,
which shall be by means of the DAC system, for so long as DAC is the Disclosure
Dissemination Agent under this Disclosure Agreement.
(f)
The Obligated Group may adjust the Annual Filing Date upon change of its fiscal year by providing
written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, Trustee (if
any) and the MSRB, provided that the period between the existing Annual Filing Date and new Annual Filing Date
shall not exceed one year.
(g)
Any Information received by the Disclosure Dissemination Agent before 6:00 p.m. Eastern time on
any business day that it is required to file with the MSRB pursuant to the terms of this Disclosure Agreement and that
is accompanied by a Certification and all other information required by the terms of this Disclosure Agreement will
be filed by the Disclosure Dissemination Agent with the MSRB no later than 11:59 p.m. Eastern time on the same
business day; provided, however, the Disclosure Dissemination Agent shall have no liability for any delay in filing
with the MSRB if such delay is caused by a Force Majeure Event provided that the Disclosure Dissemination Agent
uses reasonable efforts to make any such filing as soon as possible.
SECTION 3.
Content of Annual Reports.
(a) Each Annual Report shall contain Annual Financial Information with respect to the Obligated Group,
including for the fiscal year, the information provided in Appendix A to the Official Statement under the heading
“OPERATING AND FINANCIAL DATA” and the following subheadings:
(i)
(ii)
(iii)
(iv)
Utilization of System Facilities;
Historical Liquidity – Days-Cash-on-Hand
Historical Capitalization – Debt to Capitalization Ratio
Historical and Pro forma Debt Service Coverage of PPMH (Historical
information only)
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(b)
Audited Financial Statements prepared in accordance with generally accepted accounting principles
(“GAAP”) as described in the Official Statement will be included in the Annual Report. If audited financial
statements are not available, then, unaudited financial statements, prepared in accordance with GAAP as described in
the Official Statement will be included in the Annual Report. Audited Financial Statements (if any) will be provided
pursuant to Section 2(d).
Any or all of the items listed above may be included by specific reference from other documents, including
official statements of debt issues with respect to which the Obligated Group is an “obligated person” (as defined by
the Rule), which have been previously filed with the Securities and Exchange Commission or available on the MSRB
Internet Website. If the document incorporated by reference is a final official statement, it must be available from the
MSRB. The Obligated Group will clearly identify each such document so incorporated by reference.
Any Annual Financial Information or Quarterly Financial Information containing modified operating data or
financial information is required to explain, in narrative form, the reasons for the modification and the impact of the
change in the type of operating data or financial information being provided.
(c)
Quarterly Financial Information shall include unaudited financial statements prepared by the
Obligated Group in accordance with GAAP, including balance sheet, statement of operations and changes in net
assets, and statement of cash flows, each on a comparative basis for the same fiscal quarter for the prior year.
SECTION 4.
(a)
Reporting of Notice Events.
The occurrence of any of the following events with respect to the Bonds constitutes a Notice Event:
1.
Principal and interest payment delinquencies;
2.
Non-payment related defaults, if material;
3.
Unscheduled draws on debt service reserves reflecting financial difficulties;
4.
Unscheduled draws on credit enhancements reflecting financial difficulties;
5.
Substitution of credit or liquidity providers, or their failure to perform;
6.
Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final
determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other
material notices or determinations with respect to the tax status of the Bonds, or other
material events affecting the tax status of the Bonds;
7.
Modifications to rights of Bond holders, if material;
8.
Bond calls, if material, and tender offers;
9.
Defeasances;
10.
Release, substitution, or sale of property securing repayment of the Bonds, if material;
11.
Rating changes;
12.
Bankruptcy, insolvency, receivership or similar event of the Obligated Person;
Note to subsection (a)(12) of this Section 4: For the purposes of the event described in
subsection (a)(12) of this Section 4, the event is considered to occur when any of the
following occur: the appointment of a receiver, fiscal agent or similar officer for an
Obligated Person in a proceeding under the U.S. Bankruptcy Code or in any other
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proceeding under state or federal law in which a court or governmental authority has
assumed jurisdiction over substantially all of the assets or business of the Obligated
Person, or if such jurisdiction has been assumed by leaving the existing governing body
and officials or officers in possession but subject to the supervision and orders of a court
or governmental authority, or the entry of an order confirming a plan of reorganization,
arrangement or liquidation by a court or governmental authority having supervision or
jurisdiction over substantially all of the assets or business of the Obligated Person.
13.
The consummation of a merger, consolidation, or acquisition involving an Obligated
Person or the sale of all or substantially all of the assets of the Obligated Person, other than
in the ordinary course of business, the entry into a definitive agreement to undertake such
an action or the termination of a definitive agreement relating to any such actions, other
than pursuant to its terms, if material; and
14.
Appointment of a successor or additional trustee or the change of name of a trustee, if
material.
The Obligated Group shall, in a timely manner not in excess of ten business days after its occurrence, notify
the Disclosure Dissemination Agent in writing of the occurrence of a Notice Event. Such notice shall instruct the
Disclosure Dissemination Agent to report the occurrence pursuant to subsection (c) and shall be accompanied by a
Certification. Such notice or Certification shall identify the Notice Event that has occurred (which shall be any of the
categories set forth in Section 2(e)(iv) of this Disclosure Agreement), include the text of the disclosure that the
Obligated Group desires to make, contain the written authorization of the Obligated Group for the Disclosure
Dissemination Agent to disseminate such information, and identify the date the Obligated Group desires for the
Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth
business day after the occurrence of the Notice Event).
(b)
The Disclosure Dissemination Agent is under no obligation to notify the Obligated Group or the
Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination
Agent so notifies the Disclosure Representative, the Disclosure Representative will within two business days of
receipt of such notice (but in any event not later than the tenth business day after the occurrence of the Notice Event,
if the Obligated Group determines that a Notice Event has occurred), instruct the Disclosure Dissemination Agent
that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the
Disclosure Dissemination Agent is to report the occurrence pursuant to subsection (c) of this Section 4, together with
a Certification. Such Certification shall identify the Notice Event that has occurred (which shall be any of the
categories set forth in Section 2(e)(iv) of this Disclosure Agreement), include the text of the disclosure that the
Obligated Group desires to make, contain the written authorization of the Obligated Group for the Disclosure
Dissemination Agent to disseminate such information, and identify the date the Obligated Group desires for the
Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth
business day after the occurrence of the Notice Event).
(c)
If the Disclosure Dissemination Agent has been instructed by the Obligated Group as prescribed in
subsection (a) or (b)(ii) of this Section 4 to report the occurrence of a Notice Event, the Disclosure Dissemination
Agent shall promptly file a notice of such occurrence with MSRB in accordance with Section 2 (e)(iv) hereof. This
notice will be filed with a cover sheet completed by the Disclosure Dissemination Agent in the form set forth in
Exhibit C-1.
SECTION 5.
CUSIP Numbers. Whenever providing information to the Disclosure Dissemination
Agent, including but not limited to Annual Reports, Quarterly Reports, documents incorporated by reference to the
Annual Reports, Audited Financial Statements, Quarterly Reports, Notice Event notices, Failure to File Event notices,
Voluntary Event Disclosures and Voluntary Financial Disclosures, the Obligated Group shall indicate the full name
of the Bonds and the 9-digit CUSIP numbers for the Bonds as to which the provided information relates.
SECTION 6.
Additional Disclosure Obligations. The Obligated Group acknowledges and understands
that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated
under the Securities Exchange Act of 1934, may apply to the Obligated Group, and that the duties and responsibilities
of the Disclosure Dissemination Agent under this Disclosure Agreement do not extend to providing legal advice
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regarding such laws. The Obligated Group acknowledges and understands that the duties of the Disclosure
Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as
described in this Disclosure Agreement.
SECTION 7.
Voluntary Filing.
(a)
The Obligated Group may instruct the Disclosure Dissemination Agent to file a Voluntary Event
Disclosure with the MSRB from time to time pursuant to a Certification of the Disclosure Representative. Such
Certification shall identify the Voluntary Event Disclosure (which shall be any of the categories set forth in Section
2(e)(vi) of this Disclosure Agreement), include the text of the disclosure that the Obligated Group desires to make,
contain the written authorization of the Obligated Group for the Disclosure Dissemination Agent to disseminate such
information, and identify the date the Obligated Group desires for the Disclosure Dissemination Agent to disseminate
the information. If the Disclosure Dissemination Agent has been instructed by the Obligated Group as prescribed in
this Section 7(a) to file a Voluntary Event Disclosure, the Disclosure Dissemination Agent shall promptly file such
Voluntary Event Disclosure with the MSRB in accordance with Section 2(e)(vi) hereof. This notice will be filed with
a cover sheet completed by the Disclosure Dissemination Agent in the form set forth in Exhibit C-2.
(b)
The Obligated Group may instruct the Disclosure Dissemination Agent to file a Voluntary
Financial Disclosure with the MSRB from time to time pursuant to a Certification of the Disclosure Representative.
Such Certification shall identify the Voluntary Financial Disclosure (which shall be any of the categories set forth in
Section 2(e)(vii) of this Disclosure Agreement), include the text of the disclosure that the Obligated Group desires to
make, contain the written authorization of the Obligated Group for the Disclosure Dissemination Agent to
disseminate such information, and identify the date the Obligated Group desires for the Disclosure Dissemination
Agent to disseminate the information. If the Disclosure Dissemination Agent has been instructed by the Obligated
Group as prescribed in this Section 7(b) to file a Voluntary Financial Disclosure, the Disclosure Dissemination Agent
shall promptly file such Voluntary Financial Disclosure with the MSRB in accordance with Section 2(e)(vii) hereof.
This notice will be filed with a cover sheet completed by the Disclosure Dissemination Agent in the form set forth in
Exhibit C-3.
(c)
The parties hereto acknowledge that the Obligated Group is not obligated pursuant to the terms of
this Disclosure Agreement to file any Voluntary Event Disclosure pursuant to Section 7(a) hereof or any Voluntary
Financial Disclosure pursuant to Section 7(b) hereof.
(d)
Nothing in this Disclosure Agreement shall be deemed to prevent the Obligated Group from
disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination
set forth in this Disclosure Agreement or including any other information in any Annual Report, Quarterly Report,
Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or
Voluntary Financial Disclosure, in addition to that required by this Disclosure Agreement. If the Obligated Group
chooses to include any information in any Annual Report, Quarterly Report, Audited Financial Statements, Notice
Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure in addition
to that which is specifically required by this Disclosure Agreement, the Obligated Group shall have no obligation
under this Disclosure Agreement to update such information or include it in any future Annual Report, Quarterly
Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure
or Voluntary Financial Disclosure.
SECTION 8.
Termination of Reporting Obligation. The obligations of the Obligated Group and the
Disclosure Dissemination Agent under this Disclosure Agreement shall terminate with respect to the Bonds upon the
legal defeasance, prior redemption or payment in full of all of the Bonds, when the Obligated Group is no longer an
obligated person with respect to the Bonds, or upon delivery by the Disclosure Representative to the Disclosure
Dissemination Agent of an opinion of counsel expert in federal securities laws to the effect that continuing disclosure
is no longer required.
SECTION 9.
Disclosure Dissemination Agent. The Obligated Group has appointed Digital Assurance
Certification, L.L.C. as exclusive Disclosure Dissemination Agent under this Disclosure Agreement. The Obligated
Group may, upon thirty days written notice to the Disclosure Dissemination Agent and the Trustee, replace or appoint
a successor Disclosure Dissemination Agent. Upon termination of DAC’s services as Disclosure Dissemination
Agent, whether by notice of the Obligated Group or DAC, the Obligated Group agrees to appoint a successor
Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination
E-8
Agent under this Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any
replacement or appointment of a successor, the Obligated Group shall remain liable until payment in full for any and
all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign
at any time by providing thirty days’ prior written notice to the Obligated Group.
SECTION 10. Remedies in Event of Default. In the event of a failure of the Obligated Group or the
Disclosure Dissemination Agent to comply with any provision of this Disclosure Agreement, the Holders’ rights to
enforce the provisions of this Agreement shall be limited solely to a right, by action in mandamus or for specific
performance, to compel performance of the parties' obligation under this Disclosure Agreement. Any failure by a
party to perform in accordance with this Disclosure Agreement shall not constitute a default on the Bonds or under
any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated herein.
SECTION 11.
Duties, Immunities and Liabilities of Disclosure Dissemination Agent.
(a)
The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this
Disclosure Agreement. The Disclosure Dissemination Agent’s obligation to deliver the information at the times and
with the contents described herein shall be limited to the extent the Obligated Group has provided such information to
the Disclosure Dissemination Agent as required by this Disclosure Agreement. The Disclosure Dissemination Agent
shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The
Disclosure Dissemination Agent shall have no duty or obligation to review or verify any Information or any other
information, disclosures or notices provided to it by the Obligated Group and shall not be deemed to be acting in any
fiduciary capacity for the Obligated Group, the Holders of the Bonds or any other party. The Disclosure
Dissemination Agent shall have no responsibility for the Obligated Group’s failure to report to the Disclosure
Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination
Agent shall have no duty to determine, or liability for failing to determine, whether the Obligated Group has
complied with this Disclosure Agreement. The Disclosure Dissemination Agent may conclusively rely upon
Certifications of the Obligated Group at all times.
The obligations of the Obligated Group under this Section shall survive resignation or removal of the Disclosure
Dissemination Agent and defeasance, redemption or payment of the Bonds.
(b)
The Disclosure Dissemination Agent may, from time to time, consult with legal counsel (either inhouse or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the
construction of any of the provisions hereof or its respective duties hereunder, and shall not incur any liability and
shall be fully protected in acting in good faith upon the advice of such legal counsel. The reasonable fees and
expenses of such counsel shall be payable by the Obligated Group.
(c)
All documents, reports, notices, statements, information and other materials provided to the MSRB
under this Agreement shall be provided in an electronic format and accompanied by identifying information as
prescribed by the MSRB.
SECTION 12. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement,
the Obligated Group and the Disclosure Dissemination Agent may amend this Disclosure Agreement and any
provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of
counsel expert in federal securities laws acceptable to both the Obligated Group and the Disclosure Dissemination
Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Bonds
and would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had
been effective on the date hereof but taking into account any subsequent change in or official interpretation of the
Rule; provided neither the Obligated Group or the Disclosure Dissemination Agent shall be obligated to agree to any
amendment modifying their respective duties or obligations without their consent thereto.
Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt
amendments to this Disclosure Agreement necessary to comply with modifications to and interpretations of the
provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less
than 20 days written notice of the intent to do so together with a copy of the proposed amendment to the Obligated
Group. No such amendment shall become effective if the Obligated Group shall, within 10 days following the giving
of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment.
E-9
SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Obligated
Group, the Trustee of the Bonds, the Disclosure Dissemination Agent, the underwriter, and the Holders from time to
time of the Bonds, and shall create no rights in any other person or entity.
SECTION 14. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of
Florida (other than with respect to conflicts of laws).
SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each
of which shall be an original and all of which shall constitute but one and the same instrument.
E-10
The Disclosure Dissemination Agent and the Obligated Group have caused this Disclosure Agreement to be
executed, on the date first written above, by their respective officers duly authorized.
DIGITAL ASSURANCE CERTIFICATION, L.L.C., as
Disclosure Dissemination Agent
By:_______________________________________
Name:____________________________________
Title:_____________________________________
PHOEBE PUTNEY MEMORIAL HOSPITAL, INC., as
Obligated Group Agent
By:_______________________________________
Name:____________________________________
Title:_____________________________________
E-11
EXHIBIT A
NAME AND CUSIP NUMBERS OF BONDS
Name of Issuer
Obligated Person(s)
Name of Bond Issue:
Date of Issuance:
Date of Official Statement
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
Revenue Anticipation Certificates (Phoebe Putney Memorial Hospital) Series
2012
December 13, 2012
November 30, 2012
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
CUSIP Number:
E-12
________________________
________________________
________________________
________________________
________________________
________________________
________________________
________________________
________________________
________________________
________________________
________________________
________________________
EXHIBIT B
NOTICE TO MSRB OF FAILURE TO FILE ANNUAL/QUARTERLY REPORT
Issuer:
Obligated Person:
Hospital Authority of Albany-Dougherty County
Name(s) of Bond Issue(s):
Revenue Anticipation Certificates (Phoebe Putney Memorial Hospital) Series
2012
Date(s) of Issuance:
December _, 2012
Date(s) of Disclosure
December 1, 2012
Agreement:
CUSIP Number:
NOTICE IS HEREBY GIVEN that the Obligated Group has not provided an Annual/Quarterly Report with
respect to the above-named Bonds as required by the Disclosure Agreement between the Obligated Group and
Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. The Obligated Group has notified the
Disclosure Dissemination Agent that it anticipates that the Annual Report/Quarterly will be filed by
______________.
Dated: _____________________________
Digital Assurance Certification, L.L.C., as Disclosure
Dissemination Agent, on behalf of the Obligated Group
__________________________________________
EXHIBIT C-1
EVENT NOTICE COVER SHEET
This cover sheet and accompanying “event notice” will be sent to the MSRB, pursuant to Securities and Exchange
Commission Rule 15c2-12(b)(5)(i)(C) and (D).
Issuer’s and/or Other Obligated Person’s Name:
____________________________________________________________________________________________
Issuer’s Six-Digit CUSIP Number:
____________________________________________________________________________________________
____________________________________________________________________________________________
or Nine-Digit CUSIP Number(s) of the bonds to which this event notice relates:
____________________________________________________________________________________________
Number of pages attached: _____
E-13
____ Description of Notice Events (Check One):
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
“Principal and interest payment delinquencies;”
“Non-Payment related defaults, if material;”
“Unscheduled draws on debt service reserves reflecting financial difficulties;”
“Unscheduled draws on credit enhancements reflecting financial difficulties;”
“Substitution of credit or liquidity providers, or their failure to perform;”
“Adverse tax opinions, IRS notices or events affecting the tax status of the security;”
“Modifications to rights of securities holders, if material;”
“Bond calls, if material;”
“Defeasances;”
“Release, substitution, or sale of property securing repayment of the securities, if material;”
“Rating changes;”
“Tender offers;”
“Bankruptcy, insolvency, receivership or similar event of the obligated person;”
“Merger, consolidation, or acquisition of the obligated person, if material;” and
“Appointment of a successor or additional trustee, or the change of name of a trustee, if material.”
____ Failure to provide annual financial information as required.
I hereby represent that I am authorized by the Obligated Group or its agent to distribute this information publicly:
Signature:
____________________________________________________________________________________________
Name: ____________________________________ Title: _____________________________________________
Digital Assurance Certification, L.L.C.
390 N. Orange Avenue
Suite 1750
Orlando, FL 32801
407-515-1100
Date:
E-14
EXHIBIT C-2
VOLUNTARY EVENT DISCLOSURE COVER SHEET
This cover sheet and accompanying “voluntary event disclosure” will be sent to the MSRB, pursuant to the
Disclosure Dissemination Agent Agreement dated as of _____ between the Obligated Group and DAC.
____________________________________________________________________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
or Nine-Digit CUSIP Number(s) of the bonds to which this notice relates:
____________________________________________________________________________________________
Number of pages attached: ____
____ Description of Voluntary Event Disclosure (Check One):
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
“amendment to continuing disclosure undertaking;”
“change in obligated person;”
“notice to investors pursuant to bond documents;”
“certain communications from the Internal Revenue Service;”
“secondary market purchases;”
“bid for auction rate or other securities;”
“capital or other financing plan;”
“litigation/enforcement action;”
“change of tender agent, remarketing agent, or other on-going party;”
“derivative or other similar transaction;” and
“other event-based disclosures.”
Signature:
____________________________________________________________________________________________
Name: ____________________________________ Title: _____________________________________________
Suite 1750
Orlando, FL 32801
407-515-1100
Date:
E-15
EXHIBIT C-3
VOLUNTARY FINANCIAL DISCLOSURE COVER SHEET
This cover sheet and accompanying “voluntary financial disclosure” will be sent to the MSRB, pursuant to the
Disclosure Dissemination Agent Agreement dated as of _____ between the Obligated Group and DAC.
____________________________________________________________________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
or Nine-Digit CUSIP Number(s) of the bonds to which this notice relates:
____________________________________________________________________________________________
Number of pages attached: _____
____ Description of Voluntary Financial Disclosure (Check One):
1.
2.
3.
4.
5.
6.
7.
8.
9.
“quarterly/monthly financial information;”
“change in fiscal year/timing of annual disclosure;”
“change in accounting standard;”
“interim/additional financial information/operating data;”
“budget;”
“investment/debt/financial policy;”
“information provided to rating agency, credit/liquidity provider or other third party;”
“consultant reports;” and
“other financial/operating data.”
Signature:
____________________________________________________________________________________________
Name: ____________________________________ Title: _____________________________________________
Suite 1750
Orlando, FL 32801
407-515-1100
Date:
E-16
HOSPITAL AUTHORITY OF ALBANY-DOUGHERTY COUNTY, GEORGIA • Revenue Anticipation Certificates (Phoebe Putney Memorial Hospital) Series 2012

Hospital Authority of Albany

Transcription

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