$11,150,000
Garden City (MI) Hospital Finance Authority
Hospital Revenue Bonds
August 1996

First River Advisory had overall responsibility for the development and implementation of a plan to finance approximately $11 million of hospital improvements.  Because complex issues had to be addressed and opportunities evaluated, its role extended to a more comprehensive financial planning function, most notably the analysis of the impact of potential affiliations.  Planning for this financing commenced in the summer of 1995.  During the course of its engagement, First River Advisory:

• conducted a competitive process for a commercial bank to extend an interim loan to enable Garden City to commence construction prior to the winter of 1995/96, but before permanent bond financing could be implemented;
• drafted a request for proposals from investment banking firms to underwrite the bonds, the outcome of which was the engagement of a top-bracket firm on favorable terms;
• assisted in the establishment of a local bond issuing authority;
• maintained contact with holders of Garden City's outstanding bonds to determine their interest in purchasing additional bonds; and
• developed a plan whereby holders of Garden City's outstanding bonds would exchange such bonds for newly-issued bonds plus bonds to fund the new project, which would have consolidated Garden City's debt, provided for a more favorable amortization schedule and produced other benefits.

However, in response to changing circumstances, First River Advisory proposed a radically different financing plan in April 1996.  Because of consolidations taking place continually in the Detroit-area health care market and other factors, Garden City's management had come to believe that the institution was likely to become affiliated with another organization within five years.  Further, it would be likely that such other organization would be the financially stronger partner, with better access to the capital markets.  If that were to occur, the project could be financed on more favorable terms and at lower cost than if Garden City were to secure long-term financing on its own.  Thus, the situation demanded an intermediate-term, rather than a long-term solution.  First River Advisory requested that the bank providing the interim construction loan convert its credit exposure to a five-year letter of credit for the purpose of securing variable-rate demand obligations.  First River Advisory negotiated terms and fees with the investment banking firm underwriting the bonds that were substantially consistent with those applicable to both Chelsea Community Hospital and Silver Maples of Chelsea.  Negotiations for the letter of credit encompassed a forward commitment by the bank to refinance a loan relating to a medical office building which matured in September 1997.

Reference:
Chris Palazzolo, former Chief Financial Officer
  (313) 745-6097
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