$8,000,000
Michigan State Hospital Finance Authority
Variable Rate Demand Hospital Revenue Bonds
Chelsea Community Hospital
June 2000

This transaction represented the third financing completed by First River Advisory for Chelsea Community Hospital. The project to be financed was a Wellness Center, a new building that would house Chelsea Community's outpatient physical therapy and cardiac rehabilitation services, offices for employed orthopedic surgeons, and fitness facilities available to the community on a membership basis. First River Advisory provided extensive input to the attorneys to ensure that the project adhered to the provisions of the State Hospital Financing Authority's enabling statute, and that financing conformed to Internal Revenue Code restrictions.

To complement the fixed-rate debt incurred in connection with its Series 1998 Hospital Revenue and Refunding Bonds, Chelsea Community desired to borrow on a variable-rate basis. The result was a mix of approximately 75 percent fixed-rate debt and 25 percent variable-rate debt.

When the bank with which Chelsea Community had built a relationship declined to submit a proposal for a letter of credit (LOC), First River Advisory solicited proposals from other banks. The eventual provider of the LOC was a bank that had curtailed its hospital lending activities. First River Advisory was instrumental in presenting Chelsea Community's credit characteristics in a manner that facilitated the banker's understanding and enabled his to become an effective advocate in the bank's approval process.

First River Advisory spearheaded negotiations with the bank regarding terms, conditions and covenants. Chelsea Community achieved its two "deal-breaker" provisions:

1. the extension of the debt's amortization to approach the long useful life of the Wellness Center; and

2. the acceptance by the bank of the same security provisions granted to the Series 1998 Bondholders.

In order to facilitate administration by Chelsea Community's management, First River Advisory ensured that the documents relating to financing this relied on, rather than repeated, those already contained in the Series 1998 Bond documents. First River Advisory also negotiated favorable provisions such as:

• limitations on penalties to be paid by Chelsea Community if it were to elect to terminate the LOC prematurely;
• restrictions on the circumstances under which the bank could increase its LOC fees;
• a streamlined process for the bank's approval of periodic loan advances;
• greater latitude to replace the Remarketing Agent and the Trustee; and
• greater flexibility to pay down the debt in excess of required amounts.

References: Kathleen Griffiths,
Chief Executive Officer
(734) 475-3912
This e-mail address is being protected from spambots. You need JavaScript enabled to view it