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October 02, 2023

CHEFA INSIGHTS for October 2023

Insight Highlights

CHEFA Explores Working Capital Financing for Our Clients

Understanding Priority Orders of Municipal Bond Sales

Building Bonds: CHEFA’s Commitment to Communities Takes Center Stage

Educational Insight into Proton Therapy Center Financing

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CHEFA Explores Working Capital Financing for Our Clients

Recent legislation has expanded CHEFA’s authority to finance working capital expenses for Connecticut’s nonprofits. CHEFA’s staff has begun researching programs and would like to adopt a program that we think may be beneficial to our clients.

There two active programs that we are aware of that offer revenue anticipation notes programs to finance working capital. These programs are offered by the Kansas Independent College Finance Authority and the Iowa Higher Education Loan Authority.

Institutions have utilized these programs, by issuing tax exempt revenue anticipation notes, to meet interim working cash flows needs that fall outside of normal revenue cycles. The borrowers can use the proceeds of the notes to fund the operation of their facilities and programs. The notes are structured with a one-year term and are not subject to redemption prior to maturity.

To lower the costs of financing and to reach an economy of scale for small working capital needs, both Authorities have issued notes for multiple institutions under a single offering document. By doing so, the transaction allows for institutions to share financing costs. Each note is secured by a specific institution, and its pricing reflects the credit strength of that specific institution.

If you are interested in learning more about this program or to express your interest in a similar program if adopted by CHEFA, please contact Michael Morris at

Understanding Priority Orders of Municipal Bond Sales

In the world of municipal bonds, setting the order priority is a key move when distributing bonds in the primary market. It’s a decision in the hands of the issuing entity and it carries big weight, impacting bond allocation and compensation for the involved firms.

This plan is sketched out in the marketing blueprint, often developed alongside the issuer’s municipal advisor and underwriters, pinpointing goals like engaging retail investors and backing underrepresented businesses to shape the bond issuance.

The priority of orders brings transparency to the table, making sure everyone is on the same page about how bond orders will be handled. It’s a major factor in determining underwriter and dealer compensation since it outlines how they’ll be rewarded for different types of orders. Issuers have room to customize the order priority, with four main types: retail orders, group net orders, net designated orders, and member orders. The priority policy, closely linked to underwriter compensation, lays down the rules for net designated and retail orders, spelling out criteria and allocation percentages. It’s a tool that empowers issuers to recognize dealers in a way that matches their objectives and values. Effective communication and allocation procedures, following the order priority and priority policy, ensure a bond offering that meets specific goals while also fairly rewarding syndicate members and dealers.

To learn more about establishing priority of orders, please click on the following link recently published by the Municipal Securities Rulemaking Board.

Building Bonds: CHEFA’s Commitment to Communities Takes Center Stage

In a testament to its ongoing efforts to foster meaningful relationships with clients, community leaders, and legislators, CHEFA recently coordinated a key site visit to the American School for the Deaf (ASD) in West Hartford.

Led by Executive Director Jeanette W. Weldon, Managing Director of Client Services Michael Morris, and Government Relations & Communications Specialist Dan Giungi, the CHEFA team was joined by American School for the Deaf Executive Director, Jeffrey S. Bravin, and esteemed guests Senator Derek Slap and Representatives Jillian Gilchrest and James Sanchez from the West Hartford delegation. This visit was a proactive endeavor to raise awareness about the transformative projects CHEFA supports and their positive impact on local communities.

ASD, steeped in history dating back to 1817, holds a revered place in Connecticut’s heritage. As the oldest permanent school for the deaf in the United States and the first institution to embrace children with disabilities in the western hemisphere, ASD stands as a pioneering force in deaf education. It remains the primary educational choice for deaf and hard-of-hearing students in Connecticut, offering a distinctive bilingual learning environment with instruction in both American Sign Language and spoken English.

The CHEFA-ASD partnership, underscored by a successful $14 million financing arrangement, reflects their shared dedication to advancing deaf education. The instrumental role played by M&T Bank in this alliance, through direct financing, further underscores the collaborative spirit that fuels this partnership.

At the heart of this collaboration is ASD’s visionary initiative to construct two single-floor dormitories and two multi-purpose sports courts—a project projected to cost $13.63 million. Construction is set to commence in the summer of 2023, with completion targeted for the fall of 2024. These state-of-the-art facilities promise to enrich the lives of ASD’s students and significantly enhance the school’s capacity to offer a comprehensive education.

The financing mechanism for this ambitious project is structured to be cost-effective by utilizing a drawdown structure.. ASD will submit its expenses to CHEFA for reimbursement, with these funds applied against the approved $14 million allocation. These bonds are designed to mature on May 1st, 2053, ensuring a sustainable and enduring financial framework for ASD’s future expansion.

The site visit organized by CHEFA and attended by legislators offered key stakeholders a firsthand experience of ASD’s vibrant atmosphere and unwavering dedication to its students. Interactions with ASD staff and educators illuminated the school’s commitment to excellence in education and the profound impact it has on the lives of its students.

This visit served as a powerful reminder of the significance of the CHEFA-ASD partnership. It vividly demonstrated the shared enthusiasm and vision for creating a brighter future for all students. The invaluable support and engagement of the West Hartford delegation played a pivotal role in reinforcing the bond between CHEFA and ASD.

As construction gears up to commence, the American School for the Deaf stands on the precipice of a remarkable transformation, thanks to the enduring partnership between CHEFA and the leadership team at ASD who share the school’s vision. Together, they are not just constructing dormitories and sports courts; they are forging a legacy of empowerment, education, and inclusivity. The journey ahead promises a brighter, more inclusive future for all students at ASD and serves as a testament to CHEFA’s commitment to enhancing communities across Connecticut.

#CHEFAASDPartnership #ASDTransformation #CommunityEmpowerment

Educational Insight into Proton Therapy Center Financing

Proton therapy is a form of radiation treatment that disrupts and destroys tumor cells using precisely delivered energy. In comparison to traditional radiation treatment, proton therapy allows doctors to have better control where the energy is released, therefore impacting less healthy tissue and causing potentially fewer side effects.

The first hospital-based proton therapy center was established in 1990 at the Loma Linda University Medical Center in California, and there are currently 42 operating proton therapy centers in the United States. However, the closest facilities to Connecticut are the New York Proton Center in New York, NY and the Northeast Proton Therapy Center at Mass General Hospital in Boston, MA.

Proton therapy centers require complex construction and equipment, and many healthcare organizations partner with an experienced developer to manage the construction and operation. The developer is responsible for designing, developing, and equipping of the center, as well as managing and supervising the day-to-day operations of the center upon completion of development. The manager will also be responsible for billing and collecting both professional and technical fees related to the proton therapy services provided at the center. The costs to construct these centers can vary from $50 million to over $300 million, depending on the number of gantries (the equipment that delivers the treatment to the patient). A single gantry can cost up to $30 million. As a result, organizations have sought out unique ways to finance the construction of these centers, including the issuance of tax-exempt debt.

Due to the partnerships between healthcare organizations and developers, tax-exempt bond issuances must be structured in a way that’s different than bonds historically issued by the Authority. The borrower in these transactions is typically a limited liability company, and the member(s) of the borrower are tax-exempt organizations or a disregarded entity of the tax-exempt organizations. The borrower itself is viewed as start-up company, where its only asset is the center, and its revenues are only those derived from the operation of the center. Moreover, the tax-exempt bonds for these proton therapy centers typically are fixed rate, have a 30-year amortization, and are structured with senior and subordinate obligations. Security for the bonds include a pledge of gross operating revenues of the center, with the senior obligations also secured by a Debt Service Reserve Fund and Liquidity Support Fund. The bonds are sold only to qualified institutional buyers in denominations of $100,000 or any integral multiple of $5,000 in excess thereof.

The risks with these transactions are considerably high. At least ten proton therapy centers in the U.S. have been financed through the issuance of tax-exempt debt. The primary risk that can lead to default is insufficient patient revenue. There are a number of risk factors that can impact patient revenue which include, but are not limited to: delays in construction of the center, inability to successfully operate the center, including inability to maintain the operation of the equipment, a weak referral or patient base and changes to reimbursement rates. These risks result in higher bond yields and as a result, borrowers are faced with debt service costs considerably higher in comparison to other healthcare related tax-exempt obligations. For bonds sold prior to 2022, coupon rates ranged from 5.50% to 8.625% and in most cases priced at 100.00.