CHEFA Insights for July 2024

CHEFA Closes More Than $700 Million in Tax-Exempt Bonds

Goodwin University issues its first CHEFA Bond
On July 10, 2024, Goodwin University closed its first bond issue with CHEFA in the amount of $47.145 million. This was CHEFA’s first bond issue with a Social Bonds designation. The bond issue consisted of two series, a $44.155 million tax-exempt issue, and a $2.99 million taxable issue. Proceeds from the bonds will be used to refund certain outstanding bank loans that were used to finance the acquisition of the University of Bridgeport and its facilities and properties, and the construction of an academic building, and various capital projects. Proceeds will also be used to fund various improvements to academic facilities at both Goodwin and the University of Bridgeport.

Goodwin originally began as Data Institute of Business in 1962 and later re-established as Goodwin College in 1999. In 2004, Goodwin attained nonprofit status and moved to its current location in East Hartford. Goodwin currently provides various educational programs for approximately 3,000 undergraduate and graduate programs. In addition, Goodwin operates a system of interdistrict magnet schools serving approximately 1,200 students. In 2001, completed the acquisition of the University of Bridgeport, which currently serves approximately 4,300 students in its undergraduate, graduate and doctoral programs.

Yale New Haven Health utilizes a variety of financing structures
Yale New Haven Health’s $674.2 million Series 2024 closed on July 1, 2024 employing three different financing structures: $156.7 million Fixed Rate Bonds, with a 2048 maturity, $158.2 million Put Bonds, due July 1, 2029, and $337.0 million weekly Variable Rate Bonds, with a 2060 maturity. New money proceeds from the bond issue will be used to reimburse the system for the purchase of a medical office building and fund a portion of a new Tower Expansion Project to house a new neuroscience center to be located at the system’s Hospital of Saint Raphael campus. Yale New Haven currently operates four hospitals in Connecticut (Yale New Haven, Bridgeport, Greenwich, and Lawrence & Memorial) one in Rhode Island (Westerly) with a total licensed bed complement 2,681.

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Harnessing AI: Transforming Finance and the Municipal Bond Market

Professor Wei Chen presented on how generative AI allows users to use natural language to generate text, image, voice or code. The use of Generative AI in business allows professionals to query in natural language, creating productivity enhancement in a variety of finance functions, including compliance and reporting, financial statement analysis and risk modelling and management.

Stephen Winterstein presented on how AI impacts participants in the municipal bond market. For issuers and borrowers, compiling the necessary data for continuing disclosure requirements and preparation of an Official Statement and Appendix A can be time consuming and require considerable amount of legal expenses. The use of AI can help feed the necessary data to regulators or gather the data necessary for offering documents, reducing costs and time to bring the bonds to market.

Stephen also discussed how traders can leverage AI’s ability to utilize large amounts of data to optimize the pricing of bonds. Platforms like ficc.ai’s have created a revolutionary way of using AI for investors to analyze transactions, ensure compliance with internal audits or regulatory requirements. These platforms also help investors to automate the price discovery process, making it easier to verify transactions were executed in line with the market conditions at the time of the trade. The use of AI has allowed for markets and valuations to be more dynamic, and less static thinking.

If you missed out on the event, check out some recorded highlights below:

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FY 2023 Senior Living Sector Report Summary

The portfolio review centered on FY 2023 financial operating performance, key liquidity metrics and utilization data for ten senior living facilities of which half of the portfolio operates with an entrance fee component model.

Credit Outlook: Seven of the ten Institutions in the portfolio have an underlying credit rating with Fitch’s Rating Agency and were evaluated collectively in comparison to Fitch’s Investment Grade (“IG”) medians. Fitch’s overall outlook of the not-for-profit life plan community sector (issued on Dec 4, 2023) remains negative for 2024. While demographic trends are expected to support healthy demand, many key drivers of Fitch’s fundamental credit quality have not improved with decelerating real estate price growth, inflationary pressure and other expense pressures, particularly with staffing, leading to slower recovery.

Affiliations: In May 2024, Masonicare and United Methodist Homes, Inc. announced their intent to affiliate, with UMH intending to become part of the Masonicare Family (a current CHEFA client, the State’s largest non-profit senior living organization), though is still subject to regulatory approvals and approvals from both the organization’s boards.

Occupancy: FY 2023 occupancy trends yielded mostly favorable results among skilled nursing, assisted living and independent living units for the majority of the portfolio from FY 2022, but continue to lag pre-pandemic levels within some areas.

Operating Performance: FY 2023 operating results compared favorably to the prior year but for some institutions, significantly lag pre-pandemic performance. The three key metrics used in measuring operating performance for the portfolio consists of 1) Operating Ratio – The median improved slightly from the prior year, following three consecutive years of weakening performance; 2) Net Operating Margin Ratio – The FY 2023 median of 4.6% also improved from the prior year, but significantly lags its high of 10.1% from FY 2019; and 3) The Net Operating Margin – Adjusted – The median declined from 20.1% in FY 2022 to 15.4% in FY 2023 and is at its second lowest level over the past five years.

Liquidity: The Days Cash on Hand median of 270.5 days in FY 2023 decreased 13.4% from the prior year and by 30.8% from five years ago. Liquidity was much more favorable amongst the facilities with entrance fee agreements at 417.7 days compared to those with rental fee agreements at 202.3 days. The cash-to-debt median improved from 65.5% in FY 2022 to 72.8% in FY 2023 and is at its second highest level over the past five years. The FY 2023 cushion ratio median of 12.9 times also improved from the prior year (from 11.8 times) providing more funds available for debt service.

Capital Structure/Cash Flow: Over the past five years, the median debt service coverage ratio improved from 1.9 times to 2.4 times The debt to capitalization median improved from the prior year for the majority of the portfolio, but the majority of the portfolio is more leveraged than five years ago. The median capital spending ratio for FY 2023 of 0.7 times is at its second lowest level over the past five years, which indicates that institutions are investing less in their PP&E than their annual depreciation expense.

To learn more about CHEFA’s Senior Living Sector report for FY 2023 and the performance of the ten facilities that make up our senior living portfolio, please contact Michael Morris, Managing Director at mmorris@chefa.com.

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CHEFA Supports the Construction of Freedom Libraries through $400,000 Enterprise Capital Grant

In the realm of Connecticut philanthropy, an innovative enterprise capital grant award from CHEFA is helping the Hamden-based non-profit, Freedom Reads to build “freedom libraries” in correctional facilities throughout the country, starting right here in Connecticut.

This is CHEFA’s first cycle of enterprise capital grants and it demonstrates our commitment to supporting non-profits that are poised for mission driven growth. Unlike a traditional grant, this enterprise capital grant is designed to provide long-term, flexible capital to support Freedom Reads’ sustainability and statewide expansion efforts. Importantly, it underscores CHEFA’s dedication to fostering equitable opportunities for all Connecticut residents.

Founded in 2020 by Dwayne Betts, Freedom Reads has already made remarkable strides, establishing over 300 libraries in prisons across multiple states. Its mission—to empower incarcerated individuals through literature and post-release employment opportunities—resonates deeply with CHEFA’s vision of enhancing the quality of life for all residents.

Through the leadership of individuals like Dwayne Betts, we are reminded of the transformative power of literature and the importance of fostering hope and opportunity, even in the most challenging of circumstances.

As we celebrate this forward-thinking grant award, we are reminded that every person, regardless of their circumstances, deserves the opportunity to imagine new possibilities and pursue a brighter future. This grant exemplifies the impactful nature of CHEFA’s grant program and shows how together, with organizations like Freedom Reads, CHEFA’s grant program is providing critical support for nonprofits undertaking impactful work throughout Connecticut.

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FY 2023 Hospital Sector Report Summary

The report centered on FY 2023 financial operating performance, key liquidity metrics and utilization data. The report also included an update on mergers and acquisitions currently pending in the state as well as Moody’s credit outlook for the sector on a national basis.

CT Hospital Mergers and Acquisitions: In March 2024 Yale New Haven Health Services received final regulatory approval from OHS to move forward with their acquisition of Prospect Medical Holdings (Manchester Memorial, Rockville & Waterbury hospital), but negotiations continue and have not been finalized. In February 2024 Nuvance Health signed an affiliation agreement with Northwell Health (NY’s largest healthcare provider with 21 hospitals). The merger is still subject to a CON process, requiring state approval in CT & NY and must also be approved by the Federal Trade Commission.

Utilization: FY 2023 utilization trends within CHEFA’s portfolio yielded mostly favorable results, with increases in patient discharges (up 0.6%), observation discharges (up 19.9%), ambulatory surgeries (up 6.3%) and emergency room visits (up 2.4%) from FY 2022, but overall, continues to lag pre-pandemic levels within some areas.

Operating Performance: FY 2023 operating results were mostly unfavorable with six entities experiencing a negative operating margin, averaging -4.3%. The portfolio operating margin median for the sector declined for the second consecutive year, to -1.4% in FY 2023 and is at its lowest level over the past five years. The operating margin median calculated on the 24 hospitals individually, fared more favorably and was on par with Moody’s 2022 Median of -0.3%. The operating cash flow margin median also declined the past two years (from 7.6% to 3.8%). The range varied widely from -4.8% to 7.1% with all but two entities reporting a decrease from the prior year. The FY 2023 debt service coverage ratio median of 3.1 times increased from 2.2 times in FY 2022 but is at its second lowest level over the past five years.

Liquidity: The FY 2023 days cash on hand median of 142.9 days decreased slightly from the prior year and is significantly lower than its five-year high of 193.5 days in FY 2021. The range varied among the entities (from 26.2 days to 286.1 days) with only one entity surpassing Moody’s overall Median of 205.6 days. The cash-to-debt median declined steadily over the past four years, from 173.6% to 125.1% with seven of the eleven entities reporting a decline during this time. Only three entities cash-to-debt ratios compared favorably to Moody’s overall median of 177.1%, averaging 414.1% among them.

Capital Investment: Despite the increased cost of capital and inflation, total aggregate capital spending increased 37.4% from FY 2022 to FY 2023 and is at its highest level over the past five years (up 49.5% from FY 2019). A substantial disproportion in capital spending exists among the hospitals based on the size and financial strength of the entities. Average age of plant decreased from the prior year but remains high at 14.1 years compared to Moody’s overall median of 12.7 years.

Credit Outlook: Four of the eight remaining stand-alone hospitals and all four in-state and multi-state health systems in the portfolio maintain an underlying credit rating with one or more of the rating agencies. Moody’s outlook for the not-for-profit healthcare sector for 2024 (issued on Nov 7, 2023) was revised from the previous year from negative to stable citing an anticipated modest rebound in patient volumes, higher reimbursement rates and improvements in revenue-cycle management while expense growth decelerates, especially for labor costs. These factors indicate that a financial recovery will increasingly take hold in 2024, marked by an uptick in cash flow margins.

To learn more about CHEFA’s Hospital Sector report for FY 2023 and the performance of the 23 hospital facilities that make up our hospital portfolio, please contact Michael Morris, Managing Director at mmorris@chefa.com.

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