Hospital Wants to Alter Corporate Structure to Refinance Bond Issue

San Pedro Peninsula Hospital, which ended two years of multimillion-dollar deficits by turning a $241,000 profit last year, wants to change its corporate structure in order to refinance a long-term bond issue for an overall savings of nearly $6 million.

Hospital President John Wilson said the board of directors has proposed eliminating the 350-member community corporation that controls the hospital and replacing it with a 50-member advisory group that could include present corporate members. The change would require a majority vote of at least one-third of the corporate membership, Wilson said.

Under the proposal, the 15 hospital directors, who are now elected by corporate members, would assume full responsibility for hospital operations. The advisory group would meet several times a year to assess hospital performance and offer advice on such things as future planning and health needs. It has yet to be determined how the advisory group would be selected, he said.

Wilson said the present corporate structure--a relic of “the days when hospitals were not competitive”--is preventing the hospital from taking advantage of falling interest rates and refinancing its 20-year, $24-million bond issue.

He said that AMBAC, the New York City company that insures the bonds, will not agree to a refinancing plan unless the hospital board “has full fiduciary responsibility. AMBAC does not want to be at risk to a third party (the corporation) that has no financial liability.”

The present bond interest rate is 8.75%, but it could drop to 7% with refinancing, Wilson said. He said this would save the hospital up to $6 million over the life of the bonds.

Under the proposed system, the directors would be chosen by input from the community, the medical staff, the advisory group and the hospital’s fund-raising foundation. Although the move is considered significant to the hospital’s continuing financial turnaround, Wilson said there are no immediate plans to call a meeting of the corporation, which is made up of community residents who pay an initial fee of $100 and annual dues of $50.

“It’s something our board needs to consider and the corporation needs to consider,” he said. “People can give their input. I hope the corporation would go along with this as a reasonable idea.” he said.

After two years of deficits that totaled $10.6 million by the end of 1989, the hospital posted a $241,000 profit in 1990. Wilson said that profits this year are running ahead of those for the same period last year.

“This is extremely positive,” he said.