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Case Study #3 -- Preparing for the Capital Markets
The Manchester Group offers strategic guidance for organizations planning to go to the capital markets. Members of The Manchester Group have been involved in over $1 billion worth of bond deals that have included taxable as well as tax-exempt debt. A large portion of these bonds were credit-enhanced due to excellent working arrangements with numerous underwriters and with Moody’s, Standard & Poor’s, MBIA and Fitch.
Preparing for the capital markets begins with an analysis of the organization’s current strategic plan. The capital markets and the organization’s board of directors may have slightly differing views of the plan. An experienced capital advisor can take the strategic plan and integrate that into a financial plan that includes:
- Mission and Vision
- Objectives
- Multi-year Planning
- Projections
- Assumptions
- Accountabilities
- Action Plans
Mission and vision must be translated into a market presence and overall organizational performance through objectives and initiatives.
Objectives should include goals for financial targets as well as utilization, time frames and market share goals.
Multi-year planning demonstrates to the capital markets that the organization is using a disciplined process to set priorities and make tough decisions about required profit margins, capital expenditures, debt levels and other financial targets.
Projections should be conservative and use modeling to stress test your assumptions and identify best and worst case scenarios.
Assumptions should be in line with past actual performance and should not be overly optimistic unless there is a valid reason.
Accountabilities should be assigned to senior staff members and each senior staff member, key physicians and all board members should be able to articulate the strategy.
Action plans should be reviewed monthly and should be revised within two weeks of noted issues. Otherwise, the capital markets may assume that senior management does not have a laser focus on its action plans.
When integrating the strategic plan with the financial plan, it is important to develop a time frame for approaching the capital markets. Generally, it requires 6-18 months to approach the capital markets depending on upon the use of the proceeds. If an organization is completing a refinancing of existing debt, the timeframe may be shorter. If the goal is to build a new replacement facility, a longer timeframe should be anticipated.
The capital advisor can perform a feasibility and debt capacity analysis. A steering committee comprising the capital advisor, senior managers, department managers and board members can help guide this process. Once this analysis is complete, it should provide a clear picture as to whether the project should proceed and the amount of debt that the organization can incur to have the project go forward. Continued >>