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Some county supervisors apparently confused about UMMC demand for $9.1 million payment for leasing the hospital

Friday, October 28, 2022, 5:03 pm News Flash Archive

At this morning's meeting, the Leflore County Board of Supervisors finally adopted a resolution purporting to seek an Irrevocable Letter of Credit ("ILC") for $4.5 million to pay the county's half of $9.1 million for hospital repairs and an outstanding loan from Medicare.

But that was only after the resolution was amended to remove UMMC's name.

In the process, some of the supervisors showed that they do not understand how an ILC works, or why UMMC is requiring that such a credit letter be obtained in order to go forward with UMMC's possible leasing of the hospital from the city and county.

As we reported in detail yesterday, UMMC is in negotiations to lease the Greenwood Leflore Hospital from the city and county which jointly own it. The hospital is mere days from having to shut down completely due to massive financial losses over the past decade, which have left it with almost no cash reserves to pay its bills.

County supervisors were shocked to be told, just last Monday, that UMMC is demanding that the city and county pony up $9.1 million to pay for necessary repairs, and to repay Medicare for the money it loaned to the hospital.

To read our previous reporting, click here: City, county, hospital officials still keeping UMMC proposal top secret; county supervisors very upset about possible adverse terms of the deal

Some of the supervisors are very disturbed by the way the negotiations have gone so far, indicating that very few services may be offered by a UMMC-operated hospital in Greenwood.

But at today's meeting, a squabble broke out about whether to strike UMMC's name from the resolution. The original resolution may be seen here: Proposed Resolution to fund GLH repair/loan repayment fund

The key language of the resolution is:

RESOLVED, that the Board of Supervisors of Leflore County, Mississippi, will proceed with securing an irrevocable Letter of Credit to fund the Repair Funds Account and the MAAP Payments.

BE IT FURTHER RESOLVED, that the irrevocable Letter of Credit would only be used by the Board of Supervisors of Leflore County, Mississippi, in the event that the Lease Agreement transaction with UMMC is finalized and closes.

Supervisors Sam Abraham and Anjuan Brown made a motion to approve the resolution, but Supervisors Reginald Moore, Robert Collins, and Eric Mitchell voted it down.

Instead, those supervisors struck UMMC's name from the resolution, and the amended resolution was adopted, with Anjuan Brown casting the lone dissenting vote.

Abraham and Brown thought it was foolish to change the resolution that the city had already approved last Wednesday.

The prevailing group of supervisors argued that the county should not be bound to UMMC only, but should leave it open to the possibility that some other entity might lease the hospital.

It became apparent that most of the supervisors do not understand how an ILC actually works. They appear to believe that the money is paid to the county, which then gives it to UMMC or some other leasing entity.

In reality, an ILC is a letter from a bank promising to pay a named payee a specific sum of money upon completion of some official transaction, in this case, the signing of a lease.

In other words, the ILC is not given to the county - it is given by the bank to UMMC. It is a promise by the bank to pay UMMC the money agreed upon when the lease is finally executed.

Supervisor Eric Mitchell ended the meeting by saying, "now, let's go get the money!"

But the money from an ILC does not come to the county at all. It comes from the bank directly to UMMC.

Apparently, the supervisors are confusing a loan from the bank to the county, with an ILC from the bank to the payee, UMMC.

And the resolution approved by the supervisors today does not suffice to actually obtain an ILC. In order to do that, by law the supervisors will have to adopt another resolution, which specifies the bank, the amount, the payee by name, the terms on what fees and interest the bank will charge the county, and the triggering mechanism upon which the bank will pay out the money to the payee.

Thus, the county simply cannot obtain an ILC "in blank" to hold until it decides who to tell the bank to pay.

Some supervisors do not understand the concern that UMMC apparently has, that it will go to the expense and trouble to continue the negotiations, and prepare the legal documents, only to have the county or city baulk at having to pay the $9.1 million.

Thus, whether or not the city and county have the cash on hand is not the issue. The issue is, whether UMMC can protect its time and money in pursuing this leasing agreement without the possibility that the city or county will try to crawfish out of paying out the $9.1 million when the time comes to execute the lease.

One way to ensure payment would be for the city and county to place the $9.1 million in an escrow account with an attorney or a bank. But the city and county don't have that much cash lying about.

An ILC is the other option, since once the ILC is issued by the bank to UMMC, the city and county cannot revoke it (hence, the name "Irrevocable Letter of Credit"). UMMC wants that money "locked in" so that it will no longer be an impediment to concluding a possible lease of the hospital.

UMMC is unwilling to enter into a lease agreement with millions of dollars in costly repairs needing to be done, and with millions of dollars owed to Medicare in loan repayments. UMMC has no intention of taking those obligations on itself if it leases GLH.

Hence, UMMC is requiring a sure guarantee of payment of those costs before it continues down the road of a possible lease agreement. A bank issued ILC would take the decision away from the city and county as to paying the money to UMMC.

Of course, if the "triggering action," e.g., execution of the lease, never takes place, then the bank never has to pay out the money to UMMC. But an ILC shifts the risk of city or county default on the agreement to pay from UMMC to the bank.

Leflore County will now approach various financial institutions to find one that is willing to issue such an ILC to UMMC, and with which the county can reach an agreement as to how it intends to pay the bank the money to cover the ILC payout by the bank to UMMC. Presumably, the county will have to sign a promissory note for the money from the bank, for a certain repayment term and rate of interest.

And all of that will require that the supervisors formally adopt a resolution authorizing that agreement with the bank.

Video of this morning's Supervisors meeting may be viewed here: Board of Supervisors Special Meeting, Friday October 28, 2022

To review our reporting on GLH and its financial woes, please see here: Index of Greenwood Leflore Hospital news articles

John Pittman Hey
The Taxpayers Channel

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