STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Minutes of Authority Board Meeting July 18, 2012 The State of Connecticut Health and Educational Facilities Authority met at 1:30 p.m. on Wednesday, July 18, 2012. The meeting was called to order at 1:33 p.m. by, Chair of the Board of Directors of the Authority. Those present and absent were as follows: PRESENT: John M. Biancamano Benson R. Cohn Robert S. Dakers (Rep. Secretary Benjamin B. Barnes) Peter W. Lisi 1 Dr. Estela R. Lopez 2, Chair Sarah K. Sanders (Rep. Honorable Denise L. Nappier) ABSENT: Patrick A. Colangelo, Vice Chair Bryan K. Pollard, Esq. ALSO PRESENT: Jeffrey A. Asher, Executive Director Paula L. Herman, General Counsel Eileen MacDonald, Senior Transaction Specialist JoAnne N. Mackewicz, Controller Michael F. Morris, Assistant Director Cynthia D. Peoples H., Assistant Director Debra M. Pinney, Manager of Administrative Services Norberto Ramirez, Compliance Internal Auditor David Wasch, Legislative Liaison/ ECE Program Specialist of the Connecticut Health and Educational Facilities Authority 1 Mr. Lisi arrived to the meeting at 1:34 p.m. 2 Mr. Mutone arrived to the meeting at 1:34 p.m.
GUESTS: Julie A. Balerna, Vice President, The Bank of New York Mellon Jeremy Bass, Consultant, Public Financial Management Coleman Casey, Esq., Shipman & Goodwin LLP Carrianna Field, Esq., Pullman & Comley LLC Keisha Palmer, Esq., Robinson & Cole LLP Namita T. Shah, Esq., Day Pitney, LLP Tiffany Stevens, Associate. McCarter & English, LLP Eric P. Taylor, Esq., Harris Beach PLLC Christopher Valentino, Vice President, Lamont Financial Services Corp. 3 Jane Warren, Esq., McCarter & English, LLP John D. Yarbrough, Jr., Esq., Carmody & Torrance, LLP MINUTES Ms. Rubin requested a motion for approval of the minutes of the June 20, 2012 Meeting of the Board of Directors. Mr. Biancamano moved for approval of the minutes, which was seconded by Dr. Lopez. CURRENT AND PENDING BOND ISSUES Financing Forecast Ms. MacDonald reported that the Masonicare Corporation, Series E refunding Issue for approximately $35 million will be presented today, along with a preliminary issue for Connecticut State Colleges and Universities for $125 million for new money. 3 Mr. Valentino attended the meeting via telephone. FINAL June 20, 2012 Board Meeting Minutes 2
Summary of Financings Ms. MacDonald reported that the Authority closed two issues since the last Board meeting: Stamford Hospital, Series D, for a $250 million new money issue and Westminster School Issue, Series G, private placement with Webster Bank with an initial rate of 2.5%. Two EasyLoans also closed: ECHN-Manchester Memorial Hospital for $5.2 million for energy projects, with a variable rate with Sovereign Bank at a rate of 3.38% and the other for Bridgeport Hospital for $5.5 million for medical equipment at 1.66% with TD Equipment Finance. Future issues Staff are working on include: UConn Foundation for a $20 million private placement issue for a basketball student-athletic training center, and the University of Bridgeport for a $15 million new money private placement issue for capital projects. Interest Rate and Market Update Ms. Peoples reported on recent market activity, money market rates, economic indices and yield curve trends. Municipal Market Activity Ms. Peoples presented a report on municipal market activity in the health care sector. PRELIMINARY STAFF MEMO Connecticut State Colleges and Universities Issue, Series M Mr. Morris presented the preliminary staff memo for Connecticut State Colleges and Universities (ConnSCU), Series M issue, for approximately $125 million. Mr. Morris reported that the proceeds will be used for a total of 14 auxiliary projects as listed on Exhibit I in today s handout. Some of the larger projects include: $81.9 million for the construction of a new 637 bed residence hall at CCSU; $9.2 million for a new dining facility at CCSU and $9.1 million for residence hall renovations at WCSU. Mr. Morris explained that approximately $94 million in capital projects are scheduled at CCSU; $6.7 million at ECSU; $8.1 million at SCSU and $11.8 million at WCSU. Future projects include a new parking garage at WCSU to be financed with a future bond issue. Mr. Morris stated that all the issues are backed by the SCRF guarantee by the State. ConnSCU s pledge of revenues consist of the University Fee, student parking fees on the existing parking garages and the fees on existing residence halls, in addition to the special capital reserve fund. Mr. Morris added that the Series M issue, like all of ConnSCU s bond transactions will be conducted through a competitive sale process to be handled by Public Financial Management. He stated that there is one issue that needs to be discussed with the State Treasurer s Office concerning the timing of the pension evaluations that are being conducted over the next few months. Further discussion ensued. FINAL June 20, 2012 Board Meeting Minutes 3
FINAL STAFF MEMOS Masonicare Corporation Issue, Series E Mr. Morris presented the Masonicare Corporation Issue, Series E, to current refund its 2007 Series D bond issue of approximately $33 million. Masonicare s current letter of credit is due to expire with Wells Fargo in October 2012. Mr. Morris stated that this transaction will be a variable rate direct placement with an interest rate equal to 78% of Libor plus a spread which is based on the bond rating of the Institution, which currently is 150 basis points. However, Mr. Morris just learned this morning that there may be a potential tax issue with the pricing structure based on the credit rating, so he will be working with Webster Bank and bond counsel to resolve that issue. Mr. Morris stated that Masonicare has four swaps outstanding with their current Series C issue so the transaction will remain unhedged. Mr. Morris explained that this issue is based on a 30- year amortization and a 10-year mandatory tender. Security will be on a parity basis with the outstanding Series C issue which will consist of a gross receipts pledge and a negative mortgage pledge. Mr. Morris reported that the Series C issue is for approximately $74 million and Masonicare will be replacing the Wells Fargo letter of credit with an M&T Bank letter of credit for an annual fee of 1.5% for a term of three years. Mr. Morris stated that the financial covenants will remain the same for both the Series C and Series D issues. The Bank has proposed a minimum unrestricted cash to debt ratio of 35% tested semi-annually and minimum debt service coverage ratios of 1.25 times tested quarterly on a rolling 12-month basis. In the event that Masonicare fails to meet any of its covenants, the outstanding principal amount on the bonds shall bear interest at the default rate. Mr. Morris recommended approval for this transaction for up to $35 million. Ms. Rubin introduced Resolution #2012-14, Masonicare Corporation Issue, Series E, authorizing, which resolution was included in the materials distributed to the Board. Mr. Cohn moved for adoption of Resolution #2012-14, which was seconded by Dr. Lopez. FINAL June 20, 2012 Board Meeting Minutes 4
Renbrook School Issue, Series B Mr. Morris presented the Renbrook School Issue, Series B, financing up to $9.5 million. Mr. Morris reported that this will be a fixed-rate direct placement with Berkshire Bank for a rate of 2.65% for 10 years with a 25-year amortization and the Bank will require a mortgage and gross receipts pledge. Mr. Morris provided the Board with enrollment statistics on Renbrook School. Mr. Morris stated that AMBAC, the insurer for the outstanding Series A bonds, requires a minimum enrollment covenant of 485 students and the School has failed to meet that requirement and has been unable to obtain a waiver from AMBAC on satisfactory terms. The School continues to comply with all of its other financial covenants and is current on all payment obligations under the Series A Bonds. Mr. Morris reported that the Bank is requiring minimum cash and investments to debt ratio of 1.10 times and a minimum debt service coverage ratio of 1.2 times which are to be tested annually. If the School fails to meet any of these covenants, the outstanding principal amount on the bonds shall bear interest at the default rate. Further discussion ensued. Ms. Rubin introduced Resolution #2012-15, Renbrook School Issue, Series B, authorizing, which resolution was included in the materials distributed to the Board. Dr. Lopez moved for adoption of Resolution #2012-15, which was seconded by Mr. Mutone. CHEFA FINANCIAL OPERATIONS May 2012 Financial Statements Ms. Mackewicz presented the financial report for the 11 months ending May 31, 2012. Revenues exceeded expenses by approximately $3.2 million before program related expenses and approximately $983,000 after program related expenses. Revenues were under budget by approximately $27,000 and expenses were under budget by approximately $87,000. There were no notable items. FINAL June 20, 2012 Board Meeting Minutes 5
REVISED AUDIT REPORT ON ORGANIZATIONAL GOVERNANCE: GOVERNANCE AND RISK MANAGEMENT FRAMEWORKS Mr. Ramirez previously provided the Board with his revised Audit Report on Organizational Governance. He reported that, in general, the Board of Directors and Authority Management have an adequate governance framework in place to manage the Authority s operations. Mr. Ramirez recommended two areas where the Board of Directors and Management should develop additional procedures in order to enhance the structure and functioning of the Board: (1) Board of Directors self-assessment conducted at a minimum of every two years or as needed and/or requested by the Board Chair or Management and conducted by Mr. Ramirez, and (2) Management Business Continuity Action Plan for the Executive Director and other key positions within the Authority. Mr. Ramirez stated that Management agreed with the finding and will incorporate the development of a business continuity management action plan in the Strategic Business Plan for FY 2013-2015, which will be presented to the Board at the September 19, 2012 meeting. Mr. Cohn moved for adoption of the revised Audit Report on Organizational Governance; Governance and Risk Management Frameworks which was seconded by Mr. Mutone. EXECUTIVE DIRECTOR S REPORT Mr. Asher reported that the Connecticut Attorney General s office recently reached a settlement with J. P. Morgan with regards to their derivative products that affected ten nonprofits in the State. Four of our clients: Quinnipiac and Fairfield Universities, Yale University and Westminster School, will be receiving money as part of this settlement. Mr. Asher explained that the Connecticut and New York Attorney Generals are conducting their own independent investigation into the allegations that the Libor rate was artificially set in collaboration between a number of banks, some of whom provided Libor-based swaps to CHEFA clients. Mr. Asher forwarded information to the CT Attorney General s Office on the Libor-based swaps that the Authority is aware have taken place and asked that these be included in their investigation. Further discussion ensued. FINAL June 20, 2012 Board Meeting Minutes 6
Mr. Asher stated that the independent auditors have started their fiscal 2012 year-end audit and they will provide their audit report to the Board of Directors at the September board meeting. Mr. Asher mentioned that the Hospital of Saint Raphael and Yale-New Haven Health have been approved to merge. The outstanding bonds for the Hospital of Saint Raphael will be defeased. Mr. Asher added that he previously had reported that he had reached an impasse with building management concerning the negotiation of the Authority s office lease. He has looked at other locations and selected site at 55 Capital Boulevard in Rocky Hill in the Corporate Ridge Complex. He hopes to negotiate a lease comparable with what Management expected to have in the Hartford office with some minor tenant improvements. He will be meeting with the architect and realtor next week to review the improvements needed to the office space available at 55 Capital Boulevard. Mr. Asher reminded the Board members that the Audit-Finance Committee will meet prior to the September Board meeting. OTHER BUSINESS There being no further business, at 2:13 p.m., Dr. Lopez moved to adjourn and Mr. Mutone seconded her motion. Respectfully submitted, Jeffrey A. Asher Executive Director FINAL June 20, 2012 Board Meeting Minutes 7