The refunding will result in $9.6 million in savings ($417,000 annually) and eliminate the bankruptcy provision that requires accelerated repayment of $1 million annually beginning in 2022.  

An advance refunding of the West Contra Costa Healthcare District’s (the “District”) 2011 Certificates of Participation (the “2011 COPs”) would achieve two objectives of the District: (i) it would provide for lower debt service payments over the remaining life of the 2011 COPs and (ii) it would eliminate the provision in the bankruptcy court agreement that requires the District to accelerate repayment of its 2011 COPs, by $1,000,000 annually beginning in 2022. These additional funds received from debt service savings due to this refunding could be available to the District for other eligible and legal purposes of the District. An advance refunding means the refunding debt is issued greater than 90 in advance of paying off the debt being refunded. A current refunding means debt is issued within 90 days of paying off the debt being refunded.  
  
In 2004, the District passed a super-majority parcel tax measure, known as Measure D, to provide the needed capital to take over operation of Doctors Medical Center after its prior operator, Tenet Healthcare Corporation, elected to terminate its lease of Doctors Medical Center with the District. The parcel taxes produce approximately $5.7 million in revenue annually, which parcel tax revenues are provided as security for the 2011 COPs and for Refunding Revenue Bonds issued by the District in 2018 (the “2018 Bonds”) that refunded Certificates of Participation issued by the District in 2004 (the “2004 COPs”). The obligation of the District to make payments from parcel taxes on the 2011 COPs is on parity with the District’s obligation to make payments on the 2018 Bonds. The 2004 COPs, the 2011 COPs, the 2018 Bonds and any other parity debt secured by parcel taxes of the District are hereinafter referred to as the Parcel Tax Obligations.  
  
In 2006, the District filed for relief under Chapter 9 Bankruptcy due to a lack of sufficient reimbursement received from Medi-Cal and Medicare and emerged from bankruptcy thereafter.  
  
In 2011, with heightened investor concerns due to the difficult financial condition of the District, it was determined that the District should provide statutory lien status for investors as to the parcel tax revenues securing its Parcel Tax Obligations. Senate Bill 644 was passed and signed into law to create a statutory lien against the District’s parcel tax revenues to ensure lenders that, in the event of any future bankruptcy filing, the terms of the Parcel Tax Obligations could not be modified by a bankruptcy court. Soon after passage of Senate Bill 644, the District issued its 2011 COPs to provide working capital, fund needed capital improvements to Doctors Medical Center and to repay an advance from Contra Costa County to the District.  
  
In 2015, the District closed Doctors Medical Center and in 2017 the District filed its second Chapter 9 Bankruptcy due to continuing operating difficulties and a failing hospital facility with the effective date of the Second Amended Plan for Adjustment of the District’s Debts occurring on April 3, 2018, when the District sold the Doctors Medical Center facility. The second plan of reorganization under which the District emerged from Bankruptcy was based on a number of factors agreed to by the District, including the refunding of the 2004 COPs and the 2011 COPs to the extent that a refunding is “commercially reasonable.”  
  
On April 17, 2018, the District completed a refunding (aka refinancing) of the 2004 COPs with proceeds from the issuance of the 2018 Bonds and subsequently paid off the 2004 COPs on May 4, 2018. This current refunding of the 2004 COPs saved the District just over $2.4 million in debt service payments.  
  
The District has been evaluating an advance refunding of its 2011 COPs for several months. Because the 2011 COPs do not allow for early prepayment until July 1, 2021, it cannot provide for a current refunding until April 2, 2021 (90 days prior to the first prepayment date). In addition, current tax law no longer allows for an advance refunding of tax-exempt obligations using the proceeds of tax-exempt debt. As such, the District has been evaluating an advance refunding of the 2011 COPs with taxable obligations instead of tax-exempt obligations, which structure is allowed by the current tax code. The District has evaluated the issuance of several alternative structures, including taxable refunding debt that is nonrated, rated and insured and taxable refunding debt that converts to tax-exempt at a point in time in the future. Of all the options considered, the most favorable option is to issue taxable rate debt converting to a tax-exempt rate on or after April 2, 2021 (within 90 days of the first prepayment date of the 2011 COPs being refunded).  
  
Financing Details  
  
Pursuant to the District’s recent Bankruptcy Plan of Reorganization, the District has an obligation to complete a refunding of its 2011 COPs to the extent that a refunding is “commercially reasonable.” The following is an overview of the circumstances, options considered and the preferred option being recommended for approved: a taxable rate refunding revenue bond converting to tax-exempt rate refunding revenue bond that advance refunds the District’s 2011 COPs.  
  
• The District’s 2011 COPs can be prepaid as early as July 1, 2021, and they carry an above market average interest rate of about 6.05%.  
  
• Because of tax reform, the District cannot advance refund the 2011 COPs on a tax-exempt basis.  
  
• Alternative refunding options include a taxable advance refunding that is rated by Fitch in the A or AA rating categories or a taxable advance refunding that converts to tax-exempt on or after April 2, 2021.  
  
• The most favorable option is a bank private placement of taxable rate refunding bonds that convert to a tax-exempt rate on the first date possible, in this case April 2, 2021.  
  
• Piper Jaffray, as Placement Agent for the District, has secured very attractive term sheets from both Western Alliance Bank and Pacific Western Bank for taxable bonds that convert to tax-exempt. These term sheets provide for a taxable rate of 5.00% from May 27, 2019 to April 1, 2021, with the conversion to a tax-exempt rate of 4.125% on April 2, 2021, and thereafter until they mature on July 1, 2042.  
  
• This unique structure, as proposed produce net present value savings of approximately $6.4 million which is over 16% of the par amount of the 2011 COPs. Total debt service savings is over $9.6 million.  
  
• Prior to conversion, the District must first request that the Bonds be converted to a tax-exempt rate and the investor will need to make a “meaningful choice” related to the bonds, in this case a choice among two alternative but similar amortization schedules.  
  
• Risks for the District on this financing are minimal and include the possibility that because of an unforeseen change in the tax code, the Bonds cannot be converted to tax-exempt on the conversion date.  
  
• Worst case, which the District's finance team feels is remote, is that the interest rate on the bonds never converts to the tax-exempt rate and remains at the 5.00% taxable rate until maturity or early prepayment. If this does occur, the District’s savings would still be approximately $2.7 million which is over 6.9% of the par amount of the 2011 COPs. However, the District is advised that the chance of this worst-case scenario occurring is not likely and the District retains the ability to prepay the bonds at par (no prepayment penalty) on any date.  
  
The District is advised that this taxable converting to tax-exempt structure would qualify as a commercially reasonable refunding because it would generate up to $9.6 million in total savings (on average $417,000 per year), and would require the District to proceed with all diligence in its completion per the terms of the Bankruptcy Plan of Reorganization. In addition, by refunding both the 2004 COPs (completed in 2018) and the 2011 COPs the District would no longer be required to accelerate the repayment of its 2011 COPs starting in 2022. This provision requires accelerated annual payments of $1 million; the refunding of the 2011 COPs would eliminate this requirement, giving the District more flexibility on how it uses its capital going forward.  
  
Various documents are necessary to complete the financing, including: (i) an Indenture of Trust by and between the District and U.S. Bank National Association, as Trustee; (ii) a Bond Purchase Agreement by and between the District and Pacific Western Bank; (iii) a Bond Purchase Agreement by and between the District and Western Alliance Business Trust, a wholly owned affiliate of Western Alliance Bank; and (iv) an Escrow Agreement by and between the District and U.S. Bank National Association, as Escrow Bank.  

The District would not be able to generate savings of $9.6 million.