By John Flood

The El Camino Hospital Board of Directors unanimously passed a motion at its board meeting Oct. 11 to issue $148 million in general obligation bonds to finance part of the construction of its $480 million hospital, which will include the seismic upgrades mandated by the state. Voters approved the bonds under Measure D in 2003.

“This is a historic moment for the hospital,” said Marla Gularte, chief financial officer of El Camino Hospital. “The vote this evening allows us to offer the bonds into the market,” she said.

Citigroup Inc., the bond underwriter for the hospital, will purchase the bonds and sell them to buyers such as investment firms.

“A lot of these bonds typically end up in mutual funds,” Gularte said.

The hospital funded the initial phase of construction, about $50 million, out of its cash reserve, Gularte said. After the $148 million in general obligation bonds is exhausted, the remainder will come from $250 million in revenue bonds and from hospital cash reserves.

Construction costs are higher than the original 2002 estimate of $298 million. Delays, caused in part by a lawsuit filed by Saratoga resident Aaron Katz, and the high demand for firms skilled and knowledgeable in building earthquake-safe hospitals contributed to price increases, Gularte said.

The next phase of the financing will occur in November, when the board will vote on the $250 million revenue bonds. Because of the hospital’s A+ financial rating, it was able to secure very favorable rates that will save the hospital money, Gularte said.

The remaining revenue bonds will be issued in two phases.

“This ($250 million) debt will add (financial) stress to the organization for 30 years,” Gularte said. “We will have to perform financially to repay it.”