$18,935,000
Michigan State Hospital Finance Authority
Hospital Revenue Bonds
Central Michigan Community Hospital
June 1996

First River Advisory served as financial advisor in connection with this issue of long-term, fixed-rate bonds that were rated "BBB" by Standard & Poor's Ratings Group. The scope of services to be provided was similar to those provided to Chelsea Community, but with three key distinctions. First, prior to the actual development and implementation of the financing, First River Advisory prepared debt capacity and other capital planning analyses which enabled Central Michigan to achieve a balance between meeting demands for improved facilities and services, and maintaining its cost structure and market share. The second distinction was the extra level of service provided to a relatively young chief financial officer who had not had the experience of managing a capital financing. Lastly, the entire financing process had to be coordinated with the concurrent acquisition of a major multi-specialty primary care group practice.

• First River Advisory's more notable accomplishments in connection with this financing included:
• soliciting proposals from law firms to serve as special counsel to Central Michigan and as bond counsel, both of which resulted in the selection of seasoned attorneys at fees that were no greater than those incurred in connection with a 1993 bond issue;
• soliciting proposals from investment banking firms that resulted in an underwriting discount of approximately 61 percent of the average of three firms which had submitted proposals prior to First River Advisory's engagement, and 23 percent lower than the average of other firms submitting proposals during the competitive process, as detailed in the following table:
  
  

  Comparison of Investment Banking Fees
  	Underwriting Discount (per $1000 Bonds)	Total Compensation	Savings to Central Michigan
  Selected Firm	$7.35	$139,172
  Average of Other Competing Firms	$9.54	$180,640	$41,468
  Average of Firms Submitting Proposals prior to First River Advisory Engagement	$12.00	$227,220	$88,0

• drafting a request for proposals from investment banking firms in a manner that required the specification of interest rates on bonds that would not come to market for approximately five weeks from the date the proposals were due, with changes permitted only in response to general market conditions; and
• using its own contacts among institutional investors to stimulate demand for the bonds, and assisting the investment banking firm in the sales effort.

Perhaps First River Advisory's most important function was to ensure that the bonds were marketed at the lowest possible yield to Central Michigan. As noted above, the investment banker selection process involved the specification of bond yields. To ensure that any changes to these yields, both favorable and unfavorable, were consistent with general market trends, First River Advisory monitored the market closely using a variety of sources: general business publications, the firm's subscription to The Bond Buyer, a daily trade paper, timely and relevant data available on Internet web sites, and conversations with various market participants. First River Advisory conducted a market survey to supplement that routinely performed by the State Hospital Finance Authority. The result of these efforts was a yield on Central Michigan's BBB-rated long-term bonds that was only 60 basis points (hundredths of a percent) greater than that on similar bonds sold contemporaneously on behalf of Trinity Medical Center in Illinois, but insured and rated AAA. The following table provides additional details as to the benefit that will accrue to Central Michigan as a result of First River Advisory's supervision of the bond pricing and marketing process.

If the bonds had been sold at the consensus yields ascertained in the market survey, Central Michigan would have had to pay an additional $569,000 in debt service over the life of the issue.

Reference:

Karen Lehman, former Chief Financial Officer
(517) 483-2976
This e-mail address is being protected from spambots. You need JavaScript enabled to view it