Structuring for Long Term Debt Barry J. Flynn, M.S., CPA HFMA Dixie Institute 27 Feb 2014 – Mobile, AL

Structuring for Long Term Debt Enterprise Risk Operational Risk Financial Risk – Financial Performance & Forecasts

Structuring for Long Term Debt Enterprise Risk – Industry Risk Facility and services Reform and regulation Uncertainties of future – Economics Service area characteristics – population, employment, per capita income State & local economic environment

Structuring for Long Term Debt Enterprise risk (cont.) – Market Position Market share Competition and demand Payer mix – Management & governance Tone at the top

Structuring for Long Term Debt Operational Risk – Management team Expertise, effectiveness Organizational structure Strategic and tactical thinking/experience – Readiness to address ACA ramifications – Medical staff Staff characteristics and participation Independent, referring, employed

Structuring for Long Term Debt Operational Risk (cont.) – Clinical care Documentation of quality/outcome Community health status – Information technology Robust EMR Tracking capacity – admission, discharge, outcome, readmission – Strategic long-range planning Capitation and pay for performance Independent financial advisor

Structuring for Long Term Debt Financial Risk – Internal & External – Financial policies – risk tolerance Variable vs. fixed rate debt Current, long-term & contingent Total debt portfolio – terms, duration, collateral Expected return on incurred debt – Legal Structure Ability to incur debt/mortgage assets – Parent – subsidiarity rights – Partnerships – Public Debt covenants

Structuring for Long Term Debt Financial Performance & Forecasts – Recent and projected earnings and cash flows Net patient service revenue Margin – EBIDA, operating, excess (non-operating) Maximum annual debt service coverage and lease adjusted debt service coverage – Liquidity & flexibility Cash on hand; age of plant; reserves; planned capital improvements; contingent liabilities (SWAPS); unfunded liabilities Reserves, tax-support, Foundation support of current debt – bonds, mortgages, tax secured – Reporting and oversight

Barry J. Flynn, M.S., CPA P.O. Box 460 – Tullahoma, TN