Healthcare / Higher Education

Higher Education
Higher education institutions have historically faced funding challenges and will continue to face these challenges. Stagnated state revenues have led to flat or many cases major cuts in state appropriations in higher education. On the expense side of the equation, increasing operating costs have further restricted the ability to produce balanced operations. The projected rising cost of Medicaid has made it difficult to projected future balanced budgets without significant increases in tuition and fees and/or decrease in courses.

Acacia Financial Group, Inc. provides expertise in assisting higher education institutions in managing it’s capital costs. Our services have included: devising strategies to improve credit ratings, the analysis, implementation of alternative financing techniques, development of debt management policies, uncovering refunding opportunities. Our professionals have been instrumental in obtaining credit rating upgrades or achieved new investment grade ratings for the Institution of Advanced Study, Montclair State University, Seton Hall University, Fairleigh Dickenson University, Ramapo College, William Paterson University and the Stevens Institute. We’ve assisted New Jersey City University, The College of New Jersey, and Seton Hall University in implementing their first swaps transactions which provided substantial savings when compared to standard fixed rate bonds. The professionals at Acacia Financial Group have worked with almost every four year higher education institution in New Jersey.

Examples of our higher education experience on which AFG’s professionals have worked include the following.

NEW JERSEY EDUCATIONAL FACILITIES AUTHORITY (PRINCETON UNIVERSITY ISSUE)
On May 22, 2006, the New Jersey Educational Facilities Authority offered by competitive sale $73.29 million in Revenue Bonds for Princeton University (the “University”). The University routinely issues between $75 million to $175 million bonds annually to finance new projects. Similar to the University of Connecticut, the University’s Bonds command market rates which are generally much lower than issuers of similar credit strength. Through the month preceding the bond sale, the University had been considering selling a new money issue on a competitive basis and simultaneously selling refunding bonds on a negotiated basis. Given rising interest rates and an increasingly crowded municipal bond calendar, AFG recommended that the University offer its new money bond issue within a small window of opportunity just prior to a crowded calendar highlighted by several multi-billion issues. A day-to-day approach was recommended for the market-sensitive refunding.

Although the bonds would be offered competitively on a Monday and there was a possibility that underwriters and bond investors might be distracted given the upcoming volume, AFG believed that the University’s high name recognition and clear credit strengths would overcome these possible impediments. AFG also pre-marketed the issue by calling underwriters in advance of the bid date to generate interest in the bond sale. On the day of the sale, the University received 12 bids with a difference between the winning and cover bid of 0.033%. On average, the bonds were priced with spread of 0.04% below the AAA Municipal Market Data Index which was better than prior University issues that have priced flat to the index.

MONTCLAIR STATE UNIVERSITY
AFG recently served as Financial Advisor to Montclair State University (“MSU”) on MSU’s issuance of $98.09 million new money and $9.97 million refunding bonds through the New Jersey Educational Facilities Authority. The bonds were priced simultaneously on June 22, 2006 in a volatile interest rate market, The new money bonds were issued as fixed rate bonds to fund campus-wide projects and the refunding bonds were issued as fixed rate bonds for the current refunding of MSU”s 1996 C and 1996 D Bonds.

In 2002, MSU completed a comprehensive Strategic Plan which would assist the State of New Jersey in meeting the need for significant increase in capacity in the State’s historically under-built system of higher education. New Jersey has historically been a net exporter of high school graduates seeking baccalaureate degrees which has resulted in a migration of knowledge outside the State. The key elements of MSU’s Strategic Plan include: 1) recognition as a center of excellence in teaching and learning, 2) provision of resources to accommodate the planned expansion, 3) adoption of a plan to measure its progress in meeting its key goals, and 4) promotion of a vibrant sense of community. The State of New Jersey is not a partner to the plan and does not have a long-term commitment to provide resources to fund identifiable capital resources.

As the financial advisor to the MSU since 1997, the professionals at AFG have assisted MSU in structuring seven bond offerings to fund the Strategic Plan and to refund outstanding bonds in order to achieve debt service savings. These issues include auction and fixed rate bonds and the conversion of auction bonds to fixed rate bonds. Our responsibility was to provide the lowest cost of capital and to structure each financing to ensure project feasibility. MSU bonds are a combination of general obligation and revenue bonds which are then secured by a general pledge of the University.

Bonds have been issued to fund key elements of the Capital Plan such as two parking decks, a residential village, theatre, state-of-the-art academic building, student recreation center, renovations to existing academic buildings and residence halls, and a gymnasium. The remaining elements of the Capital Plan include an environmental and life sciences building, a science facility renovation, and a school of business building. MSU head enrollment has increased from 12,000 to over 16,000 from school year 1997-1998 to 2005-2006 and is well on its way to achieving its goal of 18,000. Additionally, school preparedness has increased as evidenced by an increase in the average SAT scores for the incoming freshman class by 40 points. Despite steady and larger than anticipated tuition and fee increases, selectivity and matriculation remain at a steady 54% and 40%, respectively, indicating an ability to increase tuition and fees if necessary.

OHIO PUBLIC FACILITIES COMMISSION
AFG’s professionals have served as financial advisor to the Ohio Public Facilities Commission (OPFC) since 2000, assisting in the issuance of 29 transactions for over $3.2 billion of bonds since 2000. As the State of Ohio funds the majority of its higher education needs through OPFC, AFG has been instrumental in assisting the State in funding its higher education general and capital needs. AFG’s professionals have served as financial advisor for over $1.0 billion in financing for higher education needs in the State of Ohio. These financings were completed by negotiated and competitive sale, for new money and refunding projects. AFG has prepared informational materials on the use of variable rate debt and swaps, including analyses on historical trading levels of BMA and LIBOR swaps. The presentation provided OPFC members with sufficient information to authorize their first forward starting swap based on LIBOR.

AFG’s professionals have advised OPFC on four swaps, two of which are based on BMA and two of which are based on LIBOR. Specifically, AFG:

• Negotiated and structured OPFC’s first issuance of variable rate bonds, including a swap to fixed rate. The swap took advantage of an anomaly in the yield curve that permitted OPFC to realize a lower cost of funds for the first seven years than was possible with fixed rate bonds.

• Established threshold levels for BMA and LIBOR swaps based on OPFC’s historical cost of funds and historical trading levels for BMA, LIBOR and 10 year MMD. This provided OPFC members with a comfort level that the swap rates were in the bottom 25% of the average of municipal bond rates over the last 10 years.

• Negotiated and structured OPFC’s first forward swap for the $200 million 2005 Common School Bonds. This was a BMA swap that was executed in August 2004 and entered into in April 2005. AFG’s professionals provided OPFC with weekly valuations of the swap and calculations of termination values.

• Competitively bid OPFC’s first LIBOR based forward starting swap in June 2005. AFG’s professionals worked with OPFC and bond counsel to update OPFC’s swap documents and coordinated the dissemination of the swap documents to the 12 qualified swap counterparties. AFG’s professionals responded to inquiries on the documents and, as a result of improving market conditions, moved the bid date up to capture the market improvement. Most notable is the entire competitive process, including negotiations on the bid documents, was done in less than a week. OPFC received 11 bids and awarded the swap in two $100 million pieces.

Healthcare:

The healthcare industry has changed dramatically since Medicare’s prospective payment system reimbursement system put pressure on healthcare providers to view their services on a more specialized basis. Since certain services are more profitable than others, hospitals now face growing competition from not only other hospitals, but also from nontraditional health providers such as physician-owned facilities.

The recently proposed changes to the inpatient prospective payment system with its significant changes to diagnosis related group which focuses on hospital costs, will effect all hospitals an may have some long term implications on how the healthcare is structured in the future. Lastly, projected federal budget deficits may cause Congress to change the current and proposed regulations.

Acacia Financial Group, Inc. specializes in assisting our clients in addressing it’s capital needs in an constantly changing market. Our professionals are adept at developing and analyzing financing strategies which provide capital funds at the lowest possible cost while still retaining much needed flexibility to operate in a dynamic industry.

Examples of our healthcare experience on which AFG’s professionals have worked include the following.

The Cooper Health System (Camden County Improvement Authority)

The professionals of AFG served as financial advisor to the Camden County Improvement Authority (“CCIA”) in connection with the CCIA’s Health Care Redevelopment Project Fixed Rate Revenue Bonds, The Cooper Health System Obligated Group Issue, $75,000,000 Series 2005A and $60,655,000 Series 2005B. The Series 2005A Bonds were issued to fund a redevelopment project of the Health System. The redevelopment project included the construction of a new patient care pavilion including construction of four additional patient care floors, renovation and expansion of the Trauma Intensive Care Unit, demolition of a parking garage, construction of plaza improvements and construction of a covered connector from the new garage, as well as other capital improvements. The Series 2005B Bonds were issued to advance refund, for savings, the CCIA’s Health Care Redevelopment Project Fixed Rate Revenue Bonds, Series 1997.

AFG’s professionals were instrumental in every step of the financing. From the initial planning phase of the Series 2005A Bonds, AFG’s professionals were paramount in assisting the Health System with determining its ability to issue bonds for the redevelopment project and reviewing financing options such as fixed-rate bonds, variable rate bonds, interest rate swaps and other derivative products. After several presentations to the Health System Board by AFG professionals, the Health System decided to issue fixed-rate bonds. Through its participation in reviewing new money options, AFG’s professionals identified an opportunity to refund the Health System’s outstanding 1997 Bonds. This refunding opportunity resulted in net present value savings to the Hospital of $2.4 million or 4.2%. AFG’s professionals spearheaded the effort to transfer the existing Forward Purchase Agreement to the refunding bonds, resulting in the mitigation of breakage penalties. In addition, a new Forward Purchase Agreement was procured for the new money bonds with the assistance of AFG’s professionals. AFG professionals were also responsible for the structuring of the refunding escrow, utilizing a combination of Open Market Securities and State and Local Government Securities.