$14,095,000
Michigan State Hospital Finance Authority
Hospital Revenue and Refunding Bonds
June 1999

This financing represents an excellent example of First River Advisory's principle of balance sheet management.  Despite superlative financial performance over the years, MHC's management anticipated a highly negative cash outflow in the coming years due to the convergence of three factors:

• the substantial principal repayments on MHC's outstanding indebtedness, all of which was scheduled to mature by 2004;
• an increased level of capital asset acquisition, including $3½ million for a new medical office building; and
• a projected continuation of losses incurred by owned physician practices.

In total, MHC faced an estimated $38 million in cash expenditures in the years through 2004. Moreover, there existed a substantial mismatch between the remaining average life of the outstanding indebtedness and the capital assets which had been financed.

First River Advisory's capital financing solution maximized the average life of the bond issue, subject to the constraint of 120 percent of the average life of the assets financed or refinanced.  The tax-exempt bond issue was limited to financing or refinancing certain qualifying capital assets, thereby preserving financial reserves for application toward the medical office building project and the physician practices.

First River Advisory's credit presentation focused on the theme of MHC as a fixture in its community, and the relative isolation of its service area.  For instance, there are no competing hospitals within its service area in which over 100,000 people reside.  First River Advisory also assisted MHC in addressing the financial performance of its physician practices, the major credit "bogey."