About Us

Make a Donation
Fully-Local • Non-Partisan • Public-Service Journalism

Central Health approves $10 million line of credit to facilitate capital purchases

Friday, November 22, 2019 by Katherine Corley

On Wednesday evening, the Central Health Board of Managers unanimously approved a $10 million revolving line of credit through JP Morgan that Central Health can use for future capital purchases of information technology, furniture and equipment.

Like a credit card, a revolving line of credit means that the credit is renewed as the debt is paid off.

“What we’ve been looking for for awhile is some sort of flexible vehicle that allows us to debt-finance capital, that has a very low cost to us, and is easy to administer, and we think that that the criteria is met through a line of credit,” said Central Health Chief Financial Officer Jeff Knodel, during a presentation to the board on Wednesday evening.

As a complement to the line of credit, the board also voted unanimously to approve a reimbursement resolution that allows Central Health to pay for various capital costs using available funds, and then periodically reimburse itself from the line of credit once the capital costs exceed $1 million, which is the minimum draw permitted from the line of credit. This reimbursement resolution can reduce interest costs by shortening the time that the debt is held.

“I think that this (line of credit) is an excellent option for us,” Board Member Sherri Greenberg said. “It would not make sense to do certificates of obligation given the costs associated with that … and I know the city of Austin and the state of Texas have both used (financial) vehicles very similar to this.”

Once Central Health draws on the line of credit, it has the option of paying the debt off over 36 months, 48 months, 60 months, or 84 months, as long as the length of the loan doesn’t exceed the useful life of the capital asset purchased. For a $1 million draw on the line of credit, current interest rates range from 2.726% for a 36-month loan to 2.772% for an 84-month loan. While interest rates may vary based on when the loan is drawn, those rates will then become fixed for the length of the loan.

Greenberg was also enthusiastic about another feature of the line of credit the option to pay off the loan after only 24 months without penalty: “We do have a prepayment option, which I think is important,” Greenberg said. “If we find that we have the ability to cash-flow this ourselves, we could pre-pay.”

The first use of the line of credit will be to finance the approximately $6 million implementation of Epic, a new electronic health record system that will be used by CommUnityCare once the ongoing contract negotiations are finalized, Knodel said.

Board Member Shannon Jones asked what the obligation of future Central Health boards will be regarding the line of credit, and Knodel responded that future boards will need to appropriate money in the annual operating budget for the debt payments each year. If Central Health happens to default on the loan, the debt is secured by a lien on real property, or, for capital purchases of software such as Epic, Central Health would be required to uninstall all software purchased with the loan, Knodel said.

“I think our intent is to be as flexible as we can as we look at improving access to care,” Knodel said. “We’ve done a lot of work comparing ourselves to other hospital districts. I know we have a different model, but we have very little debt and we’ve typically cash-financed almost everything we’ve done. But this allows us more flexibility as we move forward in the future.”

The Austin Monitor’s work is made possible by donations from the community. Though our reporting covers donors from time to time, we are careful to keep business and editorial efforts separate while maintaining transparency. A complete list of donors is available here, and our code of ethics is explained here.

Join Your Friends and Neighbors

We're a nonprofit news organization, and we put our service to you above all else. That will never change. But public-service journalism requires community support from readers like you. Will you join your friends and neighbors to support our work and mission?

Back to Top