STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Minutes of Authority Meeting February 26, 2002 The State of Connecticut Health and Educational Facilities Authority met in session at the Authority s office at 10 Columbus Boulevard, Hartford, Connecticut at 2:00 p.m. on Tuesday, March 26, 2002. The meeting was called to order by Barbara Rubin, Chair, of the Board of Directors of the Authority, and upon roll call, those present and absent were as follows: PRESENT: ABSENT: ALSO PRESENT: Lorraine M. Aronson John Biancamano William J. Cibes, Jr. Michael J. Cicchetti (Rep. Marc S. Ryan) Benson R. Cohn Patrick A. Colangelo, Vice Chair Phyllis C. DeLeo, Ph.D. Barbara Rubin, Chair Howard G. Rifkin (Rep. Denise L. Nappier) Laurence R. Smith, Jr. Richard D. Gray, Executive Director, Jeffrey A Asher, Managing Director/CFO, David A. Williams, Managing Director, Dawn Fuller, Administrative Assistant, Eileen MacDonald, Manager, Administrative Services, Michael Morris, Manager, New Business, Cynthia D. Peoples H., Senior Financial Analyst, and Jennifer P. Smyth, Document Analyst, of Connecticut Health and Educational Facilities Authority John D. Yarbrough, Esq., of Carmody & Torrance Namita Shah, Esq., of Day, Berry & Howard Jean E. Winn, Esq., of Hawkins, Delafield & Wood Minutes of the Board of Directors Meeting February 26, 2002
STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Minutes of Authority Meeting February 26, 2002 Mary W. Ervin, Associate, of Lamont Financial Services Corp. Bernadette M. Puleo, Vice President, of P.G. Corbin & Company, Inc. Stephanie Gibson, Managing Director, of Public Financial Management Edward J. Samorajczyk, Jr., Esq., of Robinson & Cole LLP Coleman H. Casey, Esq., of Shipman & Goodwin LLP Eric P. Taylor, Esq., of Winston & Strawn The Notice of Regular Meeting was read and ordered spread upon the Minutes of this Meeting and filed for the record. Minutes of the Board of Directors Meeting February 26, 2002
BOARD OF DIRECTORS MEETING February 26, 2002 The Meeting was called to order by Barbara Rubin, Chair, at 2:00 p.m. MINUTES Mr. Colangelo stated there was a correction to the Minutes of January 22, 2002. The correction is on page 19 under Grant Committee Report. The first bullet should read $2.0 million has been allocated from CHEFA reserves for potential grants and the Committee designated that 25% of this amount could be paid per year for four years. Upon motion duly moved and seconded, Minutes of the Regular Meeting of the Board of Directors Meeting of January 22, 2002 were unanimously approved with corrections. Mr. Cohn and Ms. Aronson abstained from voting. CURRENT AND PENDING BOND ISSUES Mr. Morris reviewed the Financing Forecast advising the Board that two new applications have been received. Hartford Hospital, Series C, a $30.2 million transaction, will be presented today, and Yale University, Series W, an $87.0 million issue will be presented in March. Mr. Morris mentioned that the Connecticut Hospice issue is on hold as the audited financials have not been received. Mr. Asher added that Hospice has refinanced their existing debt which is part of the reason for the delay. Mr. Morris advised that St. Francis Hospital has agreed to include the Foundation as part of the Obligated Group in their upcoming bond issue. Mr. Colangelo asked if the real estate portion of the Hospital was removed from the application, to which Mr. Morris responded in the affirmative. Mr. Morris reported the that Summary of Financings will reflect the Westminster School Series C issue which closed last week. INTEREST RATE REPORT Mr. Williams provided a verbal update on interest rates. Rates are in the same range as reported at the January 22 Board Meeting. 30-year Treasury rates are up to 5.42% at meeting time, from 5.34% on the previous Friday. The 10-year Treasury rate is currently reflected at 4.91% versus 4.92% on January 22. The three-month LIBOR and BMA Index are both up 10 basis points since last month, in the 1.20-1.30% range. Minutes of the Board of Directors Meeting February 26, 2002 1
SALES REPORTS Westminster School, Series C Ms. Gibson reviewed the information for the Westminster School Issue which sold on February 19, 2002. The bonds were sold as variable rate demand bonds. The issue was secured by a letter of credit from Fleet Bank. The initial interest rate was set at 1.05%. Ms. Gibson provided a comparison of other CHEFA transactions which priced the same week. PRELIMINARY STAFF MEMORANDUM Hartford Health Care Corporation, Series C Mr. Asher presented the information for the proposed $37.4 million issue, which will be structured as a variable rate issue. The Hartford Health Care Corporation is a pooled recycling bond issue which includes Hartford Hospital, MidState Medical Center and McLean Health Center. Hartford Hospital is guaranteeing the debt for MidState. The McLean Health Center portion of the pool will be presented to the Board separately. Fleet Bank has issued a letter of credit on this combined issue. Projects to be funded with bond proceeds include the purchase of the employee parking garage for Hartford Hospital, a 40,000 square foot expansion of MidState, and expansion of a current assisted living facility for McLean. This pooled recycling bond transaction will allow the institutions to recycle bond proceeds. As the initial loan is amortized, payments are made into a loan-repayment fund held by the trustee. Hartford Hospital has an excellent balance sheet with a low level of long-term debt, and unrestricted net assets totaling $482 million. From fiscal year 1997 to 2001, the Hospital has increased its unrestricted assets by $37.6 million. The pro-forma Debt Service Coverage Ratio is strong at 18.0 times and compares favorably to Yale-New Haven and St. Francis Hospitals. Hartford Hospital competes with Manchester Memorial Hospital, New Britain General Hospital, St. Francis Hospital, and John Dempsey Hospital; with St. Francis being the largest competitor. New Britain General Hospital is an affiliate of Hartford Hospital as a regional resource partner through an MOU. MidState Medical Center competes with Middlesex, Bradley Memorial, New Britain General, Waterbury, Saint Mary s, Yale-New Haven Hospitals and the Hospital of Saint Raphael. Ms. Rubin asked about the benefit of McLean being included in the Hartford Hospital issue to which Mr. Asher responded that from a tax perspective, the grouping strengthens the issue and saves McLean money as smaller issues are more expensive to finance. Ms. Rubin requested clarification on how recycling bonds works. Mr. Asher explained that the initial loan is given an amortization schedule based on the initial project while the Minutes of the Board of Directors Meeting February 26, 2002 2
bonds are given a longer amortization schedule. As the initial loan is amortized, payments are made into a loan-repayment fund held by the trustee. If eligible projects are available within a period after the payment is made, loans are made to finance those projects from the principal in this fund, and an amortization schedule based on the life of this project is added to the existing amortization. CONSENT AND BOND ISSUE AUTHORIZATION RESOLUTIONS Connecticut State University Systems Issue, Series D Ms. Peoples presented the memo for the Connecticut State University Systems ( CSU ) $77.0 million 20-year amortized SCRF issue under competitive bid. The proceeds from this issue will finance projects on all four campuses. The most significant being student center and dormitory renovations for $11.8 million, and construction of a parking structure for $17.6 million at Central Connecticut State University; at Eastern Connecticut State University, construction of a parking structure for $10.1 million; at Southern Connecticut State University, construction of a new student center for $34.2 million, approximately $2 million being issued with taxable bonds. CSU staff prepared financial projections based on a proposed annual increase of 3.5% in the University fee beginning Fall 2002 and flat enrollment. Based on this projection, CSU can demonstrate sufficient revenues to cover annual debt service payments on both existing and proposed bond issues. State appropriations provided 44% of total revenues for FY 2001. However, the liquidity to cover debt service comes from the University fee and student parking fees. The cash balance generated from these fees was $53.4 million as of July 1, 2001. Projected Debt Service Coverage Ratio including existing and projected debt is very strong at a minimum of 1.974 times through 2012. The State has proposed a merger of the Boards and system offices of the Connecticut State University and Community-Technical College Systems, which is expected to result in minimal expense savings. Mr. Asher mentioned that the bond issue is subject to approval by both the Connecticut State Office of Policy and Management and the State Treasurer s Office. Additionally, the revenue expected from the proposed projects is more than adequate to cover the debt service. As part of the SCRF process, the Authority has to provide a self-sufficiency certificate for the CSU issues. There being no further discussion, the Chair introduced Resolution 2002-04 (Connecticut State University Systems Issue, Series D), which Resolution was read and considered. Mr. Biancamano moved adoption of Resolution No. 2002-04. The motion was seconded by Dr. DeLeo. Minutes of the Board of Directors Meeting February 26, 2002 3
Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS Lorraine M. Aaronson none William J. Cibes, Jr. 1 John Biancamano Michael J. Cicchetti Benson R. Cohn Patrick A. Colangelo, Vice Chair Phyllis C. DeLeo Barbara Rubin, Chair The Chair then declared Resolution 2002-04 adopted (see Appendix A, Resolution 2002-04). Kingswood-Oxford School Issue, Series B Mr. Morris presented the $12 million Kingswood-Oxford School, Series B Issue to the Board for approval. This issue was last presented to the Board in July when a six-month shelf approval was approved. Staff recommends approval for the financing of this issue. This variable rate bond issue is enhanced a direct-pay letter of credit from Allied Irish Bank. Kingswood has received favorable pricing at 80 basis points. The Project originally consisted of construction of a new middle school on the main campus of Kingswood-Oxford School. The School has requested that the Authority s approval include the possibility of using a portion of the bond proceeds for the acquisition of the Science Center of Connecticut property located adjacent to the main campus. Kingswood-Oxford School is a non-profit four-year, co-educational college preparatory day school located in West Hartford. The School currently enrolls 597 students which is an improvement from 498 students in 1996. Although the School draws students from 50 towns in Connecticut, 60% of the students are from the greater Hartford area, 34.7% from West Hartford alone. Attrition rates have improved from 10.3% in 1996-97 academic year to 5.3% in the 2001-2002 academic year. Net assets have doubled since Fiscal Year 1997 to $23.5 million in Fiscal Year 2001. The school s pro-forma debt service is 6.3% indicating that the debt should be manageable. The School has a current capital campaign of $25 million of which $22.1 million has been raised as of December 2001. Mr. Colangelo questioned what the impact of the downgrading of Allied Irish Bank would have on the pricing of the transaction. Mr. Morris responded that although the suspected fraud incident at the Bank has caused some concerns among the rating agencies, neither S&P or Moody s have downgraded the Bank. However, S&P has 1 Dr. Cibes recused from discussion and voting due to his position as Chancellor for CSU. Minutes of the Board of Directors Meeting February 26, 2002 4
placed Allied Irish on CreditWatch with a negative outlook. Mr. Morris reported that the three CHEFA bond issues that have letter of credits with Allied Irish have been trading 40 to 50 basis points higher than normal. Allied Irish provided the Authority with a memo stating that the Bank is still financially viable after taking a $750 million loss for Fiscal Year 2001, and is still very committeed in the non-profit business. Ms. Rubin asked if the School received quotes from other letter of credit banks to which Mr. Morris advised that there were other quotes received, but those quotes were significantly higher compared to Allied Irish. Additionally, Allied Irish will not require a mortgage. Dr. DeLeo requested clarification on the attrition rates for Kingswood-Oxford School. Mr. Morris referred the Board to page A-17 of the Appendix A which reflects there was a significant increase in attrition rates to 26.6% in 8 th and 9 th grades for the academic year 2001-2002. However, the School s overall attrition rate for the same academic year is only 5.3%. Mr. Morris asserted that the School officials attribute the increase to an unusual circumstance for the 2001-2002 academic year. Mr. Biancamano requested further clarification regarding unrestricted endowments for Fiscal Year 1998. The Chair then introduced Resolution 2002-05 (Kingswood-Oxford School Issue, Series B, Authorizing), which Resolution was read and considered. Mr. Colangelo moved adoption of Resolution 2002-05. The motion was seconded by Dr. DeLeo. Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS Lori Aronson none none John Biancamano William J. Cibes, Jr. Michael J. Cicchetti Benson R. Cohn Patrick A. Colangelo, Vice Chair Phyllis C. DeLeo Barbara Rubin, Chair The Chair then declared Resolution 2002-05 approved. Minutes of the Board of Directors Meeting February 26, 2002 5
Science Center of Connecticut, Inc., Request for Financial Assistance Mr. Gray advised the Members that the Science Center of Connecticut has requested an extension of the maturity date of the CHEFA $275,000 loan until July 15, 2002. This extension is being requested to accommodate the sale of the Center s property to Kingswood-Oxford School. The sale of the property is expected to net between $1.7 and $1.8 million; currently there is a mortgage on the property. The Center is doing well although attendance was affected from the Adriaen s Landing project. However, the cash flow reflects a positive situation. Over 100,000 youth from throughout the state, have visited the Center. Ms. Rubin asked about accruals on a zero interest loan, to which Mr. Gray responded that the loss to CHEFA is 2% or $2700. Approval of this request will reflect positively on CHEFA and allow the Center to endure. Staff recommends approval of this issue as a good use of CHEFA reserves. Mr. Cicchetti asked for the original due date of the loan to which Mr. Gray responded the loan is due March 2002. Dr. DeLeo asked if it is unusual for CHEFA to be on two sides of an issue. In this case CHEFA provided a zero interest loan to the Science Center of Connecticut and will be providing financing for Kingswood-Oxford School to purchase property from the Center. Mr. Gray advised that we are actually on three sides: the loan to the Center, the financing of Kingswood, and the proposed Science Center attraction at Adriaen s Landing. Mr. Gray stated there is no conflict of interest. Ms. Aronson described it as the intersection of the roles of the Authority, the Science Center, Kingswood-Oxford School and Adriaen s Landing. Following discussion, Mr. Cicchetti moved for approval of the extension of the loan to the Science Center, which motion was seconded by Dr. DeLeo. Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS Lorraine M. Aronson none William J. Cibes, Jr. 2 John Biancamano Michael J. Cicchetti Benson R. Cohn Patrick A. Colangelo, Vice Chair Phyllis C. DeLeo Barbara Rubin, Chair YMCA of Greater Hartford Issue, Series A Mr. Asher reported that although the Board approved this resolution at the January meeting, Staff is now recommending an increase in the original approved amount of $15.0 million to $16.5 million to include financing costs and credit enhancement Minutes of the Board of Directors Meeting February 26, 2002 6
requested 2 by the Greater Hartford YMCA. Ambac is expected to provide bond insurance for this variable rate transaction with Fleet Bank providing the liquidity facility with an annual fee of 14 basis points. The Chair then introduced Resolution 2002-06 (Greater Hartford YMCA, Issue, Series A, Authorizing), which Resolution was read and considered. Ms. DeLeo moved adoption of Resolution No. 2002-06, the motion was seconded by Mr. Cibes. Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS Lori Aronson none none John Biancamano William J. Cibes, Jr. Michael J. Cicchetti Benson R. Cohn Patrick A. Colangelo, Vice Chair Phyllis C. DeLeo Barbara Rubin, Chair The Chair then declared Resolution 2002-06 approved. CHEFA FINANCIAL OPERATIONS January 2002 Financial Statements Mr. Asher referred Members to the January financial statements which reflect an excess of revenues over expenses for December that should be corrected as $129,000 and yearto-date as $1.39 million. Expenses remain projected to be slightly under budget with program expenses significantly below budget. Staff projects a surplus of $1.9 million. Mr. Colangelo asked about the $40,000 that CHEFA was going to add to the $2.0 million grant fund to which Mr. Asher replied that the $40,000 has been moved from the available funds so that it can not be used. The report was accepted as information. OTHER REPORTS Science Center of Connecticut Mr. Gray wanted to provide preliminary notice to the Board that the Science Center of Connecticut would like to explore the possibility of obtaining a $100,000 to $150,000 loan from CHEFA. This loan would assist the Center in sustaining operations through the 2003 winter months, which is the Center s slow season. The loan would be repaid in June 2003. Ms. Rubin asserted that a loan of that size may be considered with a security provision mortgage. 2 Dr. Cibes recused himself from voting due to his involvement with the Adriaen s Landing Project and due to his position on the Board of the Science Center of Connecticut. Minutes of the Board of Directors Meeting February 26, 2002 7
Mr. Gray advised the Board that the Center plans to operate on its current site until the Connecticut Center for Science and Exploration at Adriaen s Landing opens in four years at which time the Center would transform to Roaring Brook Nature Center. Ms. Rubin responded that the Board should require a mortgage pledge to secure the loan. Ms. Rubin asked if this loan would be structured at zero interest, to which Mr. Gray responded in the negative. Mr. Gray announced that since CHEFA s initial grant of $250,000 for the Connecticut Center for Science and Exploration at Adriaen s Landing, the group has received two additional $250,000 grants. Additionally, a matching grant of $750,000 has been requested of CCEDA and is expected to be approved. Report of auditors of Public Accounts Mr. Gray advised the Board of the State Auditor s findings. CHEFA received good scores with no audit recommendations. Mr. Gray wanted to formally thank the Accounting Department for a job well done. Personnel Issues Mr. Gray informed the Board that Diana Hughes, Accounting Manager, will be retiring in December 2002. Joanne Mackewicz has been promoted to Accounting Manager and will be responsible for Compliance and Arbitrage as well. Cynthia Peoples has been promoted to IT Manager in addition to her Financial Analyst duties. In the future, CHEFA will investigate recruiting a junior analyst. Compliance Issues Mr. Williams provided a verbal report on several compliance concerns. The Diocese of Bridgeport has tripped its Debt Service Coverage Ratio (DSCR) covenant, Pope John Paul s DSCR is 1.14 times as of September 30, 2001. Pope John Paul s shortfall is due to the structuring of a loan from its Foundation. The operation appears to be still healthy. St. Camillus Hospital SCRF issue s DSCR has declined to 1.09 times for the 12 months ending December 2001. St. Camillus decline can be attributed to a decline in private pay patients and facility management problems. The Diocese has volunteered to engage independent consultants for St. Camillus. Charlotte Hungerford Hospital has a $3.4 million write off. The Hospital s DSCR waiver, as drafted, would extend through June 2002 from Sovereign Bank and Fleet Bank. Sharon Hospital plans to redeem its outstanding debt and EasyLease in April 2002. Brunswick School s liquidity ratio appears to all mortgage to be released. Additionally, on the different insurance market, Authority staff is working with facilities out of compliance to get them back in compliance. Ms. Rubin commented that insurance has doubled or tripled without any change in coverage since the events of September 11. Ms. Rubin asked if terrorism coverage is separate. Mr. Williams stated that staff will research terrorism coverage further. Pre- September 11 policies include terrorism events, both in the market and under Connecticut regulation. The national insurance market is moving toward separating terrorism Minutes of the Board of Directors Meeting February 26, 2002 8
coverage. Authority documents in recent years appear to provide for requirements to change as the market changes. Mr. Gray advised the board that the Pope John Paul facility has its loan from its foundation paid off, and their DSCR is waivable. The St. Camillus situation is not waivable; it must engage an independent consultant. Any waiver must go through the CHEFA Board, the State Treasurer, and Office of Policy and Management for any changes in SCRF requirements. The report was accepted as information. DATE OF NEXT MEETING The Chair reminded everyone present of the next meeting date, scheduled for Tuesday, March 26, 2002. There being no further business, the Board unanimously agreed to adjourn at 2:54 p.m. Respectfully submitted, Richard D. Gray Executive Director Minutes of the Board of Directors Meeting February 26, 2002 9