Dormitory Authority – State of New York
FINANCING GUIDELINES
FOR INDEPENDENT INSTITUTIONS
Approved by the DASNY Board: December 2, 2009
The purpose of these guidelines is to provide an outline for Authority staff when considering financings on behalf of independent institutions, including higher education, health care and other eligible not-for-profit institutions. Although each proposed financing must be reviewed individually and exceptions to these guidelines may be considered, the Authority will generally require the provisions outlined below.
I. The following security provisions are required for bond financings undertaken on behalf of higher education institutions.
A. For those institutions that secure a rating of Aa3/AA-/AA- or greater, as determined by one or more nationally recognized municipal bond rating services:
1. A general obligation of the institution;
2. The retention of a qualified management consultant, at the discretion of the Authority, if an institution no longer has at least one rating of A1/A+/A+ or better, as determined by one or more nationally recognized municipal bond rating services.
B. For those institutions that secure a rating between and including Baa3/BBB-/BBB- and A1/A+/A+, as determined by one or more nationally recognized municipal bond rating services:
1. A general obligation of the institution;
2. A pledge of revenues acceptable to the Authority;
3. Financial covenants, including restrictions on pledging assets and incurrence of additional debt, and covenants relating to financial performance to serve as an early warning of financial deterioration. The specific types and terms of the covenants shall be at the discretion of the Authority. If the financial covenants are not met, the remedies available to the Authority shall include the right to require the institution to retain the services of a qualified management consultant acceptable to the Authority;
4. In addition to 1 – 3 above, for institutions rated less than A1/A+/A+ by one or more nationally recognized municipal bond rating services, a mortgage upon real estate;
5. In addition to 1 – 4 above, for institutions rated less than A3/A-/A-, as determined by one or more nationally recognized bond rating services, a debt service reserve fund. The debt service reserve fund may be funded with cash, securities, the proceeds from the sale of obligations, a letter of credit or a surety bond in an amount acceptable to the Authority.
C. For institutions that secure a rating of less than Baa3/BBB-/BBB-, as determined by one or more nationally recognized municipal bond rating services, or that are not rated:
1. Credit enhancement, acceptable to the Authority. Credit enhancement may include, but not be limited to, the following:
a) A policy of municipal bond insurance;
b) An FHA-insured mortgage;
c) A SONYMA-insured mortgage;
d) An irrevocable direct-pay or stand-by letter of credit;
e) A guarantee acceptable to the Authority.
2. In lieu of credit enhancement, a private placement of bonds may be utilized provided that:
a) The purchaser of the bonds is a qualified institutional buyer within the meaning of federal securities laws;
b) The purchaser is purchasing the bonds for investment purposes only (and not as an underwriter) and does not presently intend to transfer, otherwise distribute or sell the bonds. The purchaser, and any subsequent purchaser, agrees that if the bonds are subsequently sold, transferred or disposed of, such sale, transfer or disposition will be limited to other qualified institutional buyers;
c) The purchaser acknowledges that it is familiar with the condition, financial and otherwise, of the borrower, that it obtained all information that it regards as necessary for its decision to purchase the bonds, that it has made its own credit evaluation of the borrower and that it has not relied upon the Authority in this regard; and
d) The bonds will be offered in large denominations (at least $100,000).
II. The following security provisions are required for bond financings undertaken on behalf of eligible not-for-profit institutions other than higher education and health care institutions.
A. For those institutions that secure a rating of Aa3/AA-/AA- or greater, as determined by one or more nationally recognized municipal bond rating services:
1. A general obligation of the institution;
2. The retention of a qualified management consultant, at the discretion of the Authority, if an institution no longer has at least one rating of A1/A+/A+ or better, as determined by one or more nationally recognized municipal bond rating services.
B. For those institutions that secure a rating between and including Baa3/BBB-/BBB- and A1/A+/A+, as determined by one or more nationally recognized municipal bond rating services:
1. A general obligation of the institution;
2. A pledge of revenues acceptable to the Authority;
3. Financial covenants, including restrictions on pledging assets and incurrence of additional debt, and covenants relating to financial performance to serve as an early warning of financial deterioration. The specific types and terms of the covenants shall be at the discretion of the Authority. If the financial covenants are not met, the remedies available to the Authority shall include the right to require the institution to retain the services of a qualified management consultant acceptable to the Authority;
4. A mortgage upon real estate; and
5. A debt service reserve fund. The debt service reserve fund may be funded with cash, securities, the proceeds from the sale of obligations, a letter of credit or a surety bond in an amount acceptable to the Authority.
C. For institutions that secure a rating of less than Baa3/BBB-/BBB-, as determined by one or more nationally recognized municipal bond rating services, or that are not rated:
1. Credit enhancement, acceptable to the Authority. Credit enhancement may include, but not be limited to, the following:
a) A policy of municipal bond insurance;
b) An FHA-insured mortgage;
c) A SONYMA-insured mortgage;
d) An irrevocable direct-pay or stand-by letter of credit;
e) A guarantee acceptable to the Authority.
2. In lieu of credit enhancement, a private placement of bonds may be utilized provided that:
a) The purchaser of the bonds is a qualified institutional buyer within the meaning of federal securities laws;
b) The purchaser is purchasing the bonds for investment purposes only (and not as an underwriter) and does not presently intend to transfer, otherwise distribute or sell the bonds. The purchaser, and any subsequent purchaser, agrees that if the bonds are subsequently sold, transferred or disposed of such sale, transfer or disposition will be limited to other qualified institutional buyers;
c) The purchaser acknowledges that it is familiar with the condition, financial and otherwise, of the borrower, that it obtained all information that it regards as necessary for its decision to purchase the bonds, that it has made its own credit evaluation of the borrower and that it has not relied upon the Authority in this regard; and
d) The bonds will be offered in large denominations (at least $100,000).
III. The following security provisions are required for bond financings undertaken on behalf of health care institutions including members of obligated groups.
A. For institutions that secure a rating of Baa3/BBB-/BBB- or greater, as determined by one or more nationally recognized municipal bond rating services:
1. A general obligation of the institution;
2. A pledge of gross revenues acceptable to the Authority;
3. Financial covenants, including restrictions on pledging assets and incurrence of additional debt, and covenants relating to financial performance to serve as an early warning of financial deterioration. The specific types and terms of the covenants shall be at the discretion of the Authority. If the financial covenants are not met, the remedies available to the Authority shall include the right to require the institution to retain the services of a qualified management consultant acceptable to the Authority;
4. A mortgage upon real estate; and
5. A debt service reserve fund. The debt service reserve fund may be funded with cash, securities, the proceeds from the sale of obligations, a letter of credit or a surety bond in an amount acceptable to the Authority.
B. For institutions that secure a rating of less than Baa3/BBB-/BBB-, as determined by one or more nationally recognized municipal bond rating services, or that are not rated:
1. Credit enhancement, acceptable to the Authority. Credit enhancement may include, but not be limited to, the following:
a) A policy of municipal bond insurance;
b) An FHA-insured mortgage;
c) A SONYMA-insured mortgage;
d) An irrevocable direct-pay or stand-by letter of credit;
e) A guarantee acceptable to the Authority.
2. In lieu of credit enhancement, a private placement of bonds may be utilized provided that:
a) The purchaser of the bonds is a qualified institutional buyer within the meaning of federal securities laws;
b) The purchaser is purchasing the bonds for investment purposes only (and not as an underwriter) and does not presently intend to transfer, otherwise distribute or sell the bonds. The purchaser, and any subsequent purchaser, agrees that if the bonds are subsequently sold, transferred or disposed of such sale, transfer or disposition will be limited to other qualified institutional buyers;
c) The purchaser acknowledges that it is familiar with the condition, financial and otherwise, of the borrower, that it obtained all information that it regards as necessary for its decision to purchase the bonds, that it has made its own credit evaluation of the borrower and that it has not relied upon the Authority in this regard; and
d) The bonds will be offered in large denominations (at least $100,000).
IV. For financings involving multiple borrowers and/or structured financings that secure a programmatic rating of Baa3/BBB-/BBB- or greater, as determined by one or more nationally recognized municipal rating services, such provisions as are otherwise necessary to achieve such rating which may include but not be limited to:
A. A general obligation of each institution(s);
B. A pledge of revenues acceptable to the Authority and/or an intercept or standby intercept of such revenues;
C. Financial covenants, including restrictions on pledging assets and incurrence of additional debt, and covenants relating to financial performance to serve as an early warning of financial deterioration. The specific types and terms of the covenants shall be at the discretion of the Authority. If the financial covenants are not met, the remedies available to the Authority shall include the right to require the institution to retain the services of a qualified management consultant acceptable to the Authority.
V. Credit enhancement may be used in connection with any financing undertaken on behalf of an institution without regard to such institution’s rating. Notwithstanding any other provisions herein, specific security provisions will be determined by the credit enhancer, the institution and the Authority.
VI. Private placement of bonds may be undertaken in connection with any financing undertaken on behalf of an institution without regard to such institution’s rating provided that the private placement should be advantageous for the institution when compared to other financing options. Notwithstanding any other provisions herein, specific security provisions will be determined by the institution and the buyer.
VII. Notwithstanding any other provisions herein, the Authority has the discretion to require a pledge of revenues, a mortgage upon real estate, financial covenants and/or a debt service reserve fund in any particular financing.
Dormitory Authority – State of New York
December 2, 2009
RESOLUTION OF THE MEMBERS OF THE BOARD OF
THE DORMITORY AUTHORITY OF THE STATE OF NEW YORK ADOPTING
FINANCING GUIDELINES FOR AUTHORITY FINANCINGS
FOR INDEPENDENT INSTITUTIONS
WHEREAS, on February 24, 1999, the Members of the Board of the Dormitory Authority of the State of New York approved guidelines in connection with the security for Authority financings for independent institutions and such guidelines were amended by resolution adopted by the Members of the Board on January 23, 2008 (the “Existing Guidelines”); and
WHEREAS, staff of the Authority has advised the Board that certain provisions of the Existing Guidelines are outdated and inconsistent with the prevailing practices of health and education authorities in other States and should be modified as a result of recent changes in the municipal market, to expand the Authority’s lending criteria to include institutions rated in the BBB category, and to outline criteria for pursuing private placements; and
WHEREAS, the Members of the Board of the Dormitory Authority are desirous to rescind the Existing Guidelines and approve the New Guidelines (defined below), to conform to recommendations of staff.
NOW, THEREFORE, BE IT RESOLVED by the Members of the Board of the Dormitory Authority that:
Section 1. The Guidelines on Security for Authority Financings for Independent Institutions are hereby rescinded and the Financing Guidelines for Independent Institutions (the “New Guidelines”) are hereby approved in the form annexed hereto, and
Section 2. This Resolution shall take effect immediately.