Mergers & Acquisitions   Print E-mail


First River Advisory does not regard itself as an M&A consultant or broker, so it maintains the independence necessary to provide unbiased advice to clients which are considering mergers or sales. Because of its perspective that a health care organization's access to capital is often better than it perceives, First River Advisory has found that it can be antagonistic to M&A firms which promote these transactions. Nevertheless, First River Advisory has played more limited yet crucial roles in connection with M&A processes, as described in the following examples.


Marquette (MI) General Hospital (MGH) had been a First River Advisory client from 2004 through its sale in 2012. During that interval, First River Advisory advised MGH on the issuance of over $152 million of debt in five transactions. In addition, First River Advisory managed the conversion of $37 million of Series 2006 Auction-Rate Securities (ARS) after the collapse of the ARS market in early 2008, and the work-out of covenant defaults via the negotiation of a forbearance agreement.

On August 31, 2012, MGH concluded the sale of substantially all of its assets to a joint venture purchaser. This transaction caused the assets financed by MGH's outstanding Series 2005A Bonds and Series 2011 Bond to no longer be considered "exempt-use" property. First River Advisory was responsible for unwinding these bond issues and arranging for appropriate certificates and opinions so that MGH could deliver assets free and clear of all liens and security interests. First River Advisory also assisted MGH in negotiating a discount from the prepayment fee specified by the holder of the Series 2011 Bond, and arranged for the securities needed to fund the defeasance escrow for the Series 2005A Bonds.

The debt service reserve fund (DSRF) relating to the Series 2005A Bonds was invested in a guaranteed investment contract (GIC) with a bank. In early 2011, MGH received an unsolicited offer from the bank to pay a premium in exchange for the early termination of the GIC. Rather than accept the bank's offer, First River Advisory recommended that MGH wait until a more opportune time. First River Advisory crafted a model which demonstrated that terminating the GIC early would only be worthwhile if MGH planned to refund the Series 2005A Bonds shortly thereafter because bond refundings would have terminated the GIC at par. First River Advisory recommended that MGH actively negotiate an early termination price with respect to the Series 2005A DSRF shortly after the sale was announced, but before the bank realized that the Series 2005A Bonds would have to be refunded.

Though beyond the scope of its agreement, First River Advisory stepped up to take charge of the closing flow of funds and to arrange for delivery of all amounts due to satisfy the principals' contractual obligations. Crafting the closing flow of funds became a highly complex process because of the multitude of parties and accounts.


Garden City (MI) Hospital (GCH) had been one of First River Advisory's first clients, and had been an investment banking client of Shelley Aronson since the late 1980s. As GCh'S Financial advisor, First River Advisory had managed four bond issues involving the issuance of over $89 million of bonds. At the time of its sale to an investor-owned concern, GCH was was on its fourth Chief Financial Officer. As a result of this long-standing relationship, First River Advisory had become GCH's "institutional memory" with respect to capital financing and debt management.

First River Advisory commenced its final engagement with GCH in April 2013 by presenting to its governing board and management a history of its debt and considerations for its disposition in the event of an asset sale. Continually throughout the affiliation solicitation and negotiation process, First River Advisory provided estimates of the cost to redeem GCH's outstanding Series 1998A and Series 2007A Bonds. First River Advisory, in its role as continuing disclosure dissemination agent, circulated a material event notice announcing the execution of an asset purchase agreement in February 2014.

The scope of services provided by First River Advisory in connection with the asset sale was similar to that provided to Marquette General Hospital (MGH) in 2012, but GCH's asset sale to its purchaser was structured much differently from that of MGH. Because GCH was obligated to apply its financial reserves, together with the purchase price toward the redemption of its two series of bonds, the sufficiency of those funds was questionable, even with the purchaser's agreement to supplement the base purchase price. First River Advisory suggested to GCH and its investment advisor (having disclosed that it is not a registered investment advisor) that the investment horizon for its financial reserves be shortened to months rather than years. In particular, First River Advisory suggested that GCH's portfolio of equity securities be exchanged for less volatile high-quality short-term debt securities, most notably the U.S. Treasury Notes maturing on August 15, 2017 that would be needed to fund the defeasance escrow for the Series 2007A Bonds.

First River Advisory's role in unwinding investment agreements associated with GCH"s bonds was more complex than in the case of MGH. In addition to a Debt Service Deposit Agreement (DSDA), the Debt Service Reserve Fund (DSRF) relating to GCH's Series 1998A Bonds was subject to a forward delivery agreement (the FDA), the principal amount of which was partially reduced in 2007 in connection with a partial refunding of the Series 1998A Bonds. First River Advisory negotiated termination prices for both the DSDA and the FDA, and arranged with the bond trustee for the liquidation of securities held in the Series 2007A DSRF.

Unlike the MGH transaction where certain financial issues could be addressed post-closing, the GCH transaction was structured so that GCH would cease to exist after closing. Thus, all cash and other financial issues had to be fully accounted for. First River Advisory collaborated closely with the bond trustee to ensure that there were no leftover funds at closing.

One lesson learned from the GCH transaction is to involve First River Advisory early in the process. First River Advisory interpreted the asset purchase agreement as providing for a cash transaction, with no financing contingency. However, after First River Advisory began to participate in conference calls among all the transaction participants, it became apparent that the delivery of the purchase price was dependent on the purchaser having met certain conditions for funding under a line of credit. The purchaser declined to honor First River Advisory's request to disclose those conditions so that the risks to GCH could be evaluated. For instance, First River Advisory pointed out that the line of credit provider could refuse to fund the purchase price if regulators were to suddenly initiate a probe of another of the purchaser's facilities on the closing day, demonstrating First River Advisory's heightened awareness of risks associated with financial transactions since the 2007-09 financial crisis.


Northstar Health System, formerly known as Iron County Community Hospitals, operates a critical access hospital (CAH) in Iron River, a small town in Michigan's Upper Peninsula. First River Advisory served as financial advisor to Northstar in connection with bond issues in 2002 and 2008. Between 2011 and 2013, First River Advisory assisted Northstar in the resolution of covenant defaults and the negotiation of forbearance agreements.

In mid-2013, First River Advisory was engaged by Northstar to assist in the evaluation of affiliation proposals and the negotiation of affiliation terms and conditions. Until the affiliation became effective on July 1, 2014, First River Advisory continued to counsel Northstar as to the nature and timing of public disclosure relating to progress of the affiliation process, and to address any Northstar bondholder concerns.

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