Philosophy Print E-mail

 

Why engage an Independent Financial Advisor?

Quite simply, to ensure that your organization has experienced professionals on its side in connection with complex financial transactions. This rationale is even more important for infrequent participants in the capital markets.

Investment bankers often contend that FAs just get in the way, don't add value and represent an unnecessary cost. But health care organizations need to realize that investment banking firms are supposed to be entering into arms’ length transactions. Though investment bankers want to make hospital executives their best friends forever, there's supposed to be an adversarial, albeit constructive, relationship.

Hospital executives must recognize that there are two sides of transactions between which the investment banking firm stands. The firm is acting as a middleman, purchasing bonds from the hospital (or its conduit issuer) and selling them to investors. A successful investment banking firm must also continually satisfy its "buy side" customers with whom it transacts business daily. In a typical negotiated sale, the firm will propose a scale of yields that produces an overall price at which it is willing to purchase the bonds only after the bonds have been formally offered to its "buy side" customers. How would a health care organization, especially an infrequent borrower, know that its investment banking firm offers to purchase its bonds at the most favorable price? It would have to rely on evidence offered by the firm that the bonds were priced appropriately, for there is little unbiased information readily available to borrowers. The present value of one basis point on bonds maturing in thirty years is approximately $1,540 per million. Thus, the impact on a $30 million bond issue would be approximately $46,200 per basis point. One of any independent FA's most important functions in connection with a negotiated sale is the evaluation of the yields at which the underwriter proposes to purchase the bonds. Just knowing that a diligent FA is watching can make a difference.

What distinguishes First River Advisory from other FAs?

On Your Side: First River Advisory is an independent FA that is not affiliated in any manner with a bank, investment banking firm (broker/dealer), other financial institution or investment manager. As an independent FA, First River Advisory is clearly an advocate for its clients, and is accountable solely to its clients. Because First River Advisory has no "products" (i.e., loans, letters of credit, bond underwriting services) to sell, it has the latitude to consider products offered by any financial institution, in any combination. Although Dodd-Frank requires that an FA maintain a fiduciary duty standard only to certain clients, First River Advisory routinely applies this standard to all clients.

No Conflicts: First River Advisory's "no conflict" policy requires that it refrain from entering into agreements with any organization which might be considered a competitor or potential merger/affiliation partner of an existing client.

Specialization: First River Advisory is singularly focused on non-profit health care organizations. In its 23 years of existence, only three clients have ever fallen outside this category, none of which were solicited. Do you want dilettantes or experienced professionals who "do this all the time?"

WYSIWYG (what you see is what you get): Shelley Aronson and/or Anne Morse, both industry veterans having over 30 years' experience in capital financing for health care organizations, personally perform all tasks which comprise an engagement. Each client receives close attention from experienced advisors. There are neither young associates, trainees, nor interns to whom assignments are delegated, so quality assurance is not left to chance.

Leadership: As the leader of the financing team, First River Advisory coordinates the activities of other professionals and governmental organizations which need to be involved in the issuance of tax-exempt bonds. First River Advisory understands the roles played by other financing team members so that leadership can be exerted effectively. That knowledge enables First River Advisory to set timetables and workplans so that clients' objectives can be achieved efficiently. Moreover, First River Advisory demands accountability, and ensures that other financing team members deliver quality, timely service; First River Advisory has recommended replacement of financing team members when warranted. Because financing teams include diverse and sometimes adversarial members (i.e., clients and bond underwriters), First River Advisory pro-actively builds consensuses and finds workable and lasting solutions without compromising clients' interests.

Comprehensive "Hands On" Approach: First River Advisory routinely takes a comprehensive, "leave no stone unturned" approach to its financial advisory engagements. Moreover, First River Advisory's clients tend to be smaller organizations without extensive staff resources. Unlike many other investment bankers and financial advisors, First River Advisory routinely takes the initiative to collect, organize and analyze data, and to draft key documents, relegating management to a less burdensome "review and comment" role. First River Advisory prepares Credit Profiles, major endeavors, from raw data and other "off the shelf" information supplied by clients. In most cases, First River Advisory needs only those reports and data which already exist for some other purpose.

Uncomplicates the Process: Many of First River Advisory's clients can be characterized as "first time" borrowers: the transaction for which First River Advisory was engaged represented the initial foray into the public capital markets for either the organization as a whole, or on the part of key members of management. Most other clients have been infrequent participants in the capital markets, conditions in which may have changed since the last time around. None have ever been "deal-a-year" organizations. Because of their lack of familiarity, executives of First River Advisory clients were apprehensive about the capital financing process. Accordingly, First River Advisory provides that extra degree of attention to ensure that these executives understand the financing process and are prepared for upcoming events. First River Advisory presents issues, together with analyses and recommendations, to its clients' governing board and management in a manner that facilitates decision-making. First River Advisory's leadership, coordination skills and attention to detail were instrumental in relieving clients' executives' burdens and streamlining these inherently complex transactions.

No "Cookie Cutter" Solutions: Nor does one size fit all. While certain basic principles are applied consistently, First River Advisory's ability to "think outside the box" results in capital financing solutions that are tailor made to fit each client's individual circumstances. In fashioning these solutions, First River Advisory takes into account the organization’s strengths, weaknesses, opportunities and threats, as well as a variety of environmental factors. Further, because First River Advisory views capital financing as a means to an end, the solution must represent an implementation step of the client's long range strategic plan.

Credit Orientation: None of First River Advisory's clients have ever been regarded as "top-shelf" credits. Some have marginal investment-grade ratings, but most would be rated below investment-grade. Consequently, close attention to the preparation of presentations of credit information have been crucial to the success of their financings. Where relevant, these presentations of credit information can evolve into the disclosure section (usually "Appendix A") of Official Statements in connection with public offerings of bonds. As demonstrated in a 2016 bond issue for Oaklawn Hospital, a well-organized, exhaustive and highly-polished Appendix A can make a meaningful difference in challenging market conditions.

How does First River Advisory's disclosure philosophy benefit its clients?

Even prior to the implementation of SEC Rule 15c2 12 in 1994 (and prior to the formation of First River Advisory), Shelley Aronson has been in the forefront of promoting the concept of continuing disclosure to his clients. To their credit, most clients have accepted the advice. Over the years, many institutional investors have come to recognize that compliance with the both the letter and the spirit of Rule 15c2 12 is a hallmark of First River Advisory clients.

In the primary "new issue" market, an Official Statement's Appendix A that has been drafted by First River Advisory has several favorable characteristics:

  • Completeness:  First River Advisory's arguably unrealistic goal is to draft an Appendix A that "answers every question ever asked" by investment analysts. While First River Advisory has never quite achieved this goal, follow-up with supplemental information is minimized. That way, bond marketing activities are not hampered by having to continue to gather and circulate basic information.
  • Presentation:  First River Advisory presents the information in a clear, concise "user-friendly" manner that facilitates analysis.
  • Beyond the Ordinary:  Over the years, First River Advisory has been among the first to expand the scope of the Appendix A. In a 2005 financing, First River Advisory prefaced the Appendix A with text relating to "forward looking" statements which had been adapted from the corporate securities world to facilitate more comprehensive disclosure that adhered to legal standards. The "Quality" section of the Appendix A relating to Oaklawn Hospital's Series 2016 Bonds spanned more than ten pages.

First River Advisory believes that these characteristics result in its clients’ bonds receiving the attention they deserve by key institutional investors. Because of their "user-friendliness," analysts will naturally gravitate toward the Official Statement relating to a First River Advisory client when faced with a stack to analyze. First River Advisory has received many favorable comments regarding the quality of its Appendix A's from investment analysts over the years.

First River Advisory believes that an effective continuing disclosure program can produce the following benefits:

  • Because investors (like many others) do not like surprises, delivering "bad news" is less troublesome.
  • Establishing a pattern of "trying to do the right thing" can promote better communications during workouts of covenant non-compliance.
  • More extensive data disclosure can facilitate the completion of rating agency data forms that precede periodic rating updates.
  • Continual dialogue with investors provides a context for soliciting investor feedback on strategic planning initiatives.
  • For more frequent borrowers, better continuing disclosure can reduce yields on subsequent bond issues.
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