| Northstar Health System (2002) |
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$4,023,000 This transaction demonstrates First River Advisory's ability to provide "value-added" services on smaller transactions. The planning phase of the engagement involved the solicitation and evaluation of proposals from banks for either a direct purchase of tax-exempt bonds, a letter of credit that would be used to back tax-exempt bonds, or a loan guaranteed by the U.S. Department of Agriculture's Rural Development Administration. The comparison of proposals also encompassed an issued of non-rated tax-exempt bonds based on NHS's credit characteristics. The outcome of this process was NHS's acceptance of a bank's proposal to purchase bonds that would amortize over 25 years at an initial interest rate of 5.46 percent for the first seven years. Interest rate resets were established at 50 basis points over an index of seven-year constant-maturity U.S. Treasury securities. FRA suggested this market-based index as an alternative to the bank's proposed index that was based on its cost of funds, a potential risk for NHS. With the bank's permission, First River Advisory drafted the central legal document for the financing, incorporating only those terms, conditions and covenants that were specifically enumerated in the bank's commitment letter. As a result, the final Indenture and Loan Agreement does not contain many traditional bank lending provisions. Because the bank's commitment was limited to the purchase of "bank-qualified" bonds, it became necessary to establish a new bond issuing authority under the auspices of the City of Iron River. First River Advisory assisted in the formation of the issuer, which was complicated by the State of Michigan's recent enactment of vast changes to the municipal finance statutes. Reference:
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