Case Study #1 Case Study #2 Case Study #3 |
Case Study #3 -- Preparing for the Capital Markets [continued]
When the project is deemed feasible, the organization should assemble a capital markets team, including the capital advisor, legal team, investment banker and the bond issuer.
The investment banker is responsible for structuring and executing the transaction including:
- Determining the security for the bonds, including credit enhancement
- Obtaining a rating from Moody's, Standard & Poor's and Fitch
- Marketing and selling the bonds to retail and institutional investors
The bond issuer is typically a governmental entity, who is responsible for generating the financing documents and rendering an opinion on the tax-exempt status of the bonds.
If a replacement facility is being built, the organization will need local zoning and site control, project scope development, design, appraisal, environmental review and approvals, and certificate of need review and approval, if needed. An experienced legal advisor can help the organization identify and obtain approvals for additional items that may be required.
The capital advisor and investment banker will perform the financing plan determination to identify which portion of the debt is taxable or tax-exempt, security structure for the bonds and the credit enhancement. Hospitals with a strong credit profile may not need credit enhancement, whereas hospitals with a weak credit profile will need credit enhancement. Common forms of credit enhancement include municipal bond insurance, bank letters of credit and FHA 242 mortgage insurance.
The bond issuer must hold a Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) Hearing. This hearing is held to allow the public to ask questions about the pending project and financing. The public must be notified 14 days prior to the date of the TEFRA hearing. Once the TEFRA hearing is held, the issuer must adopt an inducement resolution formally supporting the hospital's request for financing.
The investment banker and capital advisor initiate the transaction preparation, which includes the security structure, the documents and the development of the Preliminary Official Statement (POS or "red herring ").
The final step of the process involves the actual issuance of the bonds, including marketing and pricing, by the Investment Banker and the closure and delivery of the debt securities.