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Jefferson Parish Council. April 2, 2014. by Nemzoff & Company, LLC. Presentation to. Presentation Outline. Hospital Profiles Bidder Profiles Credit Comparison Summary of Bids Credit Analysis Proposed Selection Criteria Next Steps Questions and Answers. Hospital Profiles.

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  1. Jefferson Parish Council April 2, 2014 by Nemzoff & Company, LLC Presentation to

  2. Presentation Outline • Hospital Profiles • Bidder Profiles • Credit Comparison • Summary of Bids • Credit Analysis • Proposed Selection Criteria • Next Steps • Questions and Answers

  3. Hospital Profiles Dollars in Millions

  4. Hospital Profiles Dollars in Millions

  5. Hospital Profiles Dollars in Millions

  6. Hospital ProfilesTransaction Cash Shortfall Dollars in Millions

  7. Bidder Profile Dollars in Millions *Medicaid Supplemental Payment - $204MM

  8. Bidder Profile Dollars in Millions *Medicaid Supplemental Payment - $80MM

  9. Bidder Profile Dollars in Millions

  10. Bidder Profile Dollars in Millions 1Medicaid UPL $66MM 2Medicaid Supplemental Payment - $284MM

  11. Bidder ProfileLCMC - Accounting 101 Example 1 Community hospital is making $5MM in profits this year and the last day of the year, they borrow $10MM and they do not spend it. On their year end financials, They show a $5MM profit on their Income Statement. Their debt which is a liability goes up by $10MM and their cash goes up $10MM. That is why they call it a Balance Sheet, because anything that happens on the liability side impacts the assets side dollar for dollar.

  12. Bidder ProfileLCMC - Accounting 101 Example 2 Community hospital is making $5MM in profits this year and on the last day of the year they buy an MRI for $4MM. On their year-end financials, they show a $5MM profit, because capital expenditures are not an expense that appears on their Income Statement. On their Balance Sheet, their cash goes down by $4MM and their property plant and equipment goes up by $4MM. Their total assets do not change.

  13. Bidder ProfileLCMC - Accounting 101 What happened at LCMC in 2013? They borrowed $250MM. So their debt went up by $250MM and their cash went up $250MM. In addition to that, they wrote the state a check for $258MM in order to prepay the lease on the University transaction. They put that expense on their Balance Sheet and they called it "other assets“. The state of Louisiana increased their Supplemental Medicaid payments by $260MM, virtually the same number. They put that on their Income Statement as revenue.

  14. Bidder ProfileLCMC - Accounting 101 What happened at LCMC in 2013? The revenue went on their income statement, the expense went on their balance sheet and the money is gone. But if you only look at their income statement, it looks like they made a fortune. Their forecast for EBDIT in 2014 is 3%. That means they have $27MM in cash flow before they pay the debt service on $340MM bonds and before they pay for any capital.

  15. Bidder Profile Dollars in Millions

  16. Bidder Profile Dollars in Millions

  17. Credit Comparison Total Revenue $2B * * * *Source: Standard and Poor’s 2012 Median

  18. Credit Comparison EBDIT Margin 2013 1 -18% 1 1 1 2 2 2 2 1 LCMC entities adjusted for Medicaid Pass-through 2 Source: Standard and Poor’s 2012 Median

  19. Credit Comparison Days Cash on Hand 2013 NA NA NA * * * * *Source: Standard and Poor’s 2012 Median

  20. Summary of BidsWhat is Transaction Value? • Cash Delivered at Closing • Property Taxes Paid • Debt Assumed • Pension Obligations Assumed • Other Liabilities Assumed • Equals Transaction Value at Closing • Plus Capital Equals Total Transaction Value

  21. Summary of BidsTransaction Value – East Jefferson Dollars in Millions

  22. Summary of BidsNet Proceeds – East Jefferson Dollars in Millions

  23. Summary of Bids Transaction Value - Both Hospitals Dollars in Millions

  24. Summary of Bids Net Proceeds - Both Hospitals Dollars in Millions

  25. Summary of Bids Transaction Value - West Jefferson Dollars in Millions

  26. Summary of BidsNet Proceeds - West Jefferson Dollars in Millions

  27. Summary of BidsTransaction Value - Both Hospitals Dollars in Millions

  28. Summary of BidsNet Proceeds - Both Hospitals Dollars in Millions

  29. Summary of BidsTransaction Value -Individual Hospitals Dollars in Millions

  30. Summary of BidsNet Proceeds - Individual Hospitals Dollars in Millions

  31. Summary of BidsTransaction Value/Net Proceeds Reconciliation – Both Hospitals Dollars in Millions

  32. Summary of BidsTransaction Value/Net Proceeds Reconciliation –Individual Hospitals Dollars in Millions

  33. Summary of BidsCapital CommitmentComparison of Bids Dollars in Millions

  34. Ochsner Credit Analysis Dollars in Millions

  35. Ochsner Credit Analysis Lease for East Jefferson Dollars in Millions

  36. Ochsner Credit Analysis Lease for East Jefferson Dollars in Millions 1Prorated based on 9 mos. data 2Assumes payment of $208MM at closing

  37. LCMC Credit Analysis Dollars in Millions

  38. LCMC Credit AnalysisLease for Both Hospitals Dollars in Millions

  39. LCMC Credit Analysis Lease for West Jefferson Dollars in Millions

  40. LCMC Credit Analysis Lease for Both Hospitals Dollars in Millions *Assumes payment of $449MM at closing.

  41. LCMC Credit Analysis Additional Consideration • Performance based payments assuming an increase in EBDIT above 8%. Value assigned by LCMC - $129MM. • Economic Impact of moving back-office functions. Value assigned by LCMC - $24.5MM per year.

  42. LCMC Credit Analysis Additional Consideration • Lease term 30 years plus three 15-year renewal – total term 75 years. • At the end of the lease any improvements made to the existing building revert back to the District. Anything they build off campus, LCMC keeps. Any major moveable equipment they purchase, LCMC keeps.

  43. Proposed Selection Criteria The #1 Criteria for Selecting a Winning Bid is, “What is best for the people of Jefferson Parish?”

  44. Proposed Selection Criteria The #2 Criteria for Selecting a Winning Bid is, “Who can we entrust our hospital to for the next 45 to 75 years?”

  45. Proposed Selection CriteriaReport Card

  46. Proposed Selection CriteriaReport Card

  47. Proposed Selection CriteriaWhat is credit strength?

  48. Next Steps • Select Winning Bidder • Retain Transaction Team • Due Diligence • Definitive Agreement • Closing

  49. Next Steps • Both hospitals, management team, attorneys, financial advisors & board members all have a conflict of interest with respect to negotiating the transaction. • Management team members would negotiating with their future employers.

  50. Next Steps • Advisors and lawyers would be negotiating with their future clients. • The Board Members are currently the Board of Trustees of the Lessor. The day after closing, they will be the Board of Trustees of the Lessee, unless they all resign.

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