$8,000,000
Schenectady County (NY) Industrial Development Agency
Multi-Mode Variable-Rate Demand Civic Facility Revenue Bonds, Series 2003A
Sunnyview Hospital and Rehabilitation Center
May 2003

$4,780,000
Schenectady County (NY) Industrial Development Agency
Multi-Mode Variable-Rate Demand Civic Facility Revenue Bonds, Series 2003B
Sunnyview Hospital and Rehabilitation Center
June 2003

Sunnyview is a free-standing rehabilitation hospital located in Schenectady, New York. In addition to operating its own inpatient facility, Sunnyview directs rehabilitation programs at three area nursing homes, manages rehabilitation units at a nearby general hospital, and conducts various outpatient and community programs. Sunnyview serves residents of several counties in New York's capital region, and many of its programs are unique to an even wider area.

Sunnyview engaged First River Advisory to resolve its immediate financing need – an $8.2 million bed replacement and expansion project. In addition, the disposition of $5.4 million outstanding on a conventional bank loan needed to be addressed.

Typical of its engagements, First River Advisory commenced its activities by defining and evaluating the viability and cost-effectiveness of several financing alternatives. The result of extensive simulation analyses performed by First River Advisory revealed that an issue of variable-rate demand obligations (VRDOs) would be the most cost-effective approach, provided that a letter of credit (LOC) could be obtained from a bank on favorable terms, and that Sunnyview's management governing board became comfortable with the risks involved. To ensure that an LOC could be obtained on favorable terms, First River Advisory employed a two-step approach:

• First River Advisory fostered competition among three banks by preparing background material and employing a "hands-on" approach to explaining the merits of the transaction.
• First River Advisory obtained an indication from a rating agency that Sunnyview could achieve an investment-grade rating, which would enable Sunnyview to access the market for long-term, fixed-rate bonds without any credit enhancement. If Sunnyview still preferred the variable-rate alternative, the fixed-rate bonds could be swapped for a variable-rate obligation. First River Advisory advised the banks that Sunnyview was fully prepared to proceed without their involvement at all.

The outcome of this process was a determination that both the fixed-rate and VRDO alternatives were indeed viable, and that the latter approach was the more cost-effective. The bank selected to provide the LOC reduced its initial fee proposal from 1.75 percent annually to 1.20 percent, a savings of nearly $72,000 annually. The most onerous covenants were either diluted or eliminated altogether, leaving the remaining covenants at manageable levels.

During the implementation phase of its engagement, First River Advisory conducted interviews with two competing governmental bond issuers, and defined appropriate selection criteria. First River Advisory negotiated a reduction in the underwriting discount, saving Sunnyview another $44,000, and determined that splitting the issue into two series would save Sunnyview another $35,000 net. To implement a swap to a fixed interest rate, First River Advisory collaborated with a firm that specializes in preparing and evaluating swap bids. The outcome of this process was the execution of a swap in which Sunnyview will pay a fixed rate of 3.072 percent (plus LOC fees) for 30 years without any unfavorable covenants. This competitive bidding process enabled Sunnyview to fix its rate for 30 years, ten years beyond the maximum term offered by the LOC bank, and enabled Sunnyview to avoid the LOC bank's onerous covenants.

Reference:
Chip Eisenman, Chief Financial Officer
(518) 386-3697
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