Presentation to
Jefferson Parish Council
by Nemzoff & Company, LLC
Presentation Outline
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Hospital Profiles
Bidder Profiles
Credit Comparison
Summary of Bids
Credit Analysis
Proposed Selection Criteria
Next Steps
Questions and Answers
Hospital Profiles
Dollars in Millions
East Jefferson
2011
2012
2013
Operating Revenue
EBDIT
EBDIT Margin
Cash
$360
$37
10%
$160
$366
$28
8%
$133
$367
$18
5%
$129
Debt
Rating
$172
NA
$166
NA
$161
Ba1
Hospital Profiles
Dollars in Millions
West Jefferson
Operating Revenue
EBDIT
2011
$251
$26
2012
$254
$26
2013
$269
$27
EBDIT Margin
Cash
Debt
10%
$100
$145
10%
$102
$143
10%
$99
$144
Rating
NA
NA
BBB
Hospital Profiles
Dollars in Millions
East & West Jefferson - Combined
Operating Revenue
EBDIT
2011
$611
$63
2012
$620
$54
2013
$636
$45
EBDIT Margin
Cash
Debt
10%
$259
$317
9%
$235
$309
7%
$229
$305
Rating
NA
NA
NA
Hospital Profiles
Transaction Cash Shortfall
Dollars in Millions
Current
as of
12/31/13
Bonds
Assumed
Bonds
Paid off
Operating Revenue
$636
$636
$636
Cash
$229
$0
$0
$45
$45
$45
Principal
($8.4)
($8.4)
$0
Interest
($17.6)
($17.6)
$0
$19
$19
$45
Capital Commitment
($37)
($45)
($45)
Annual Cash
Flow Surplus (Deficit)
($18)
($26)
$0
EBDIT
Cash Flow before
Capital Requirements
Bidder Profile
Dollars in Millions
Children’s Hospital
2011
2012
2013
2014
Operating
Revenue
EBDIT
$223
$18
$252
$45
$407
$195*
NA
NA
EBDIT Margin
Cash
8%
$665
18%
$708
48%
NA
NA
NA
Debt
$0
$0
NA
NA
Rating
NA
NA
AA
NA
*Medicaid Supplemental Payment - $204MM
Bidder Profile
Dollars in Millions
Touro Infirmary
2011
2012
2013
2014
Operating
Revenue
EBDIT
EBDIT Margin
$249
$20
8%
$306
$33
11%
$349
$96*
29%
NA
NA
NA
Cash
$40
$85
NA
NA
Debt
$75
$73
NA
NA
Rating
NA
NA
BBB
NA
*Medicaid Supplemental Payment - $80MM
Bidder Profile
Dollars in Millions
Interim LSU Hospital – 6 month data
2011
2012
2013
2014
Operating
Revenue
EBDIT
EBDIT Margin
NA
NA
NA
NA
NA
NA
$176
($31)
(18%)
NA
NA
NA
Cash
Debt
Rating
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Bidder Profile
Dollars in Millions
LCMC - Combined
Operating
Revenue
EBDIT
EBDIT Margin
Cash
Debt
Rating
2011
2012
2013
2014
$464
$38
8%
$705
$75
NA
$524
$781
15%
$793
$73
NA
$932
$2612
28%
$1,135
$343
NA
$940
$26
3%
$1,061
$322
NA
1
Medicaid UPL $66MM
2
Medicaid Supplemental Payment - $284MM
Bidder Profile
LCMC - Accounting 101
Example 1
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.
2. On their year end financials, They show a $5MM
profit on their Income Statement.
3. 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.
Bidder Profile
LCMC - Accounting 101
Example 2
1. Community hospital is making $5MM in profits this
year and on the last day of the year they buy an MRI
for $4MM.
2. On their year-end financials, they show a $5MM
profit, because capital expenditures are not an
expense that appears on their Income Statement.
3. 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.
Bidder Profile
LCMC - Accounting 101
What happened at LCMC in 2013?
1. They borrowed $250MM. So their debt went up by
$250MM and their cash went up $250MM.
2. 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“.
3. The state of Louisiana increased their Supplemental
Medicaid payments by $260MM, virtually the same
number. They put that on their Income Statement as
revenue.
Bidder Profile
LCMC - Accounting 101
What happened at LCMC in 2013?
4. 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.
5. Their forecast for EBDIT in 2014 is 3%.
6. That means they have $27MM in cash flow before
they pay the debt service on $340MM bonds and
before they pay for any capital.
Bidder Profile
Dollars in Millions
Ochsner Health System
2011
2012
2013
(9 mo. data)
Operating Revenue
EBDIT
EBDIT Margin
$1,796
$115
6%
$1,842
$72
4%
$1,475
$102
7%
Cash
Debt
Pension Liability
Rating
$437
$666
$144
NA
$367
$656
$155
NA
$364
$634
$151
BBB+
Bidder Profile
Dollars in Millions
HCA
2011
2012
2013
Operating Revenue
EBDIT
EBDIT Margin
Cash
$29,682
$7,063
24%
$373
$33,013
$6,371
19%
$705
$34,182
$6,547
19%
$414
Debt
Rating
$26,000
NA
$27,000
NA
$28,000
Ba3
Credit Comparison
Total Revenue
Ochsner
$2B
LCMC
Interim
Touro
Children's
W&E
West
East
Junk*
BBB
*
A
*
AA
*
$0
$200
$400
$600
*Source: Standard and Poor’s 2012 Median
$800
$1,000
$1,200
$1,400
Credit Comparison
EBDIT Margin
2013
-18%
Ochsner
1
LCMC
1
Interim
Touro1
1
Children's
W&E
West
East
Junk 2
BBB2
A2
AA2
0%
4%
1
LCMC entities adjusted for Medicaid Pass-through
2 Source: Standard and Poor’s 2012 Median
8%
12%
Credit Comparison
Days Cash on Hand
2013
Ochsner
LCMC
Interim
NA
Touro
NA
Children's
NA
W&E
West
East
*
Junk
BBB*
A*
AA*
0
100
200
300
*Source: Standard and Poor’s 2012 Median
400
500
600
700
Summary of Bids
What is Transaction Value?
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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
Summary of Bids
Transaction Value – East Jefferson
Dollars in Millions
Ochsner Health System
Bonds
Assumed
Bonds
Paid Off
Cash Delivered at Closing
$0
$167
Assumption of Debt
$167
$0
Debt Service Reserve Fund
$0
$0
Trustee Held Fund
$0
$0
SUBTOTAL
$167
$167
Assumption of Pension
$33
$33
Assumption of Other Liabilities
$8
$8
Transaction Value at Closing
$208
$208
Plus PV of Capital over 15 yrs.
$208
$208
Total Transaction Value
$416
$416
Summary of Bids
Net Proceeds – East Jefferson
Dollars in Millions
$0
Bonds
Paid Off
$167
Cash on Hand
Debt Service Reserve Fund
$186
$0
$186
$12
Debt Paid Off
Net Proceeds
$0
$186
($205)
$160
Ochsner Health System
Cash at Closing
Bonds
Assumed
Summary of Bids
Transaction Value - Both Hospitals
Dollars in Millions
Bonds
Bonds
LCMC
Assumed Paid Off
Cash Delivered at Closing
$223
$449
Assumption of Debt
Debt Service Reserve Fund
Trustee Held Funds
Transaction Value at Closing
Plus PV of Capital over 15 yrs.
Total Transaction Value
$305
($23)
($87)
$418
$490
$908
$0
$0
$0
$449
$490
$939
Summary of Bids
Net Proceeds - Both Hospitals
Dollars in Millions
$223
Bonds
Paid Off
$449
Cash on Hand
Other Liabilities
Pension
Debt
$229
($10)
($66)
$0
$229
($10)
($66)
$305
Trustee Held Funds
Defeasance Premium
Net Proceeds
$0
$0
$376
$110
$76
$331
LCMC
Cash at Closing
Bonds
Assumed
Summary of Bids
Transaction Value - West Jefferson
Dollars in Millions
LCMC
Cash Delivered at Closing
Bonds
Assumed
Bonds
Paid Off
$66
$225
Assumption of Debt
Trustee Held Funds
Other Liabilities
Pension
$147
($38)
$4
$33
$0
$0
$0
$0
Transaction Value at Closing
Plus PV of Capital over 15 yrs.
Total Transaction Value
$212
$233
$445
$225
$233
$458
Summary of Bids
Net Proceeds - West Jefferson
Dollars in Millions
$66
Bonds
Paid Off
$225
Cash on Hand
Other Liabilities
Pension
Trustee Held Funds
$99
$0
$0
$0
$99
($3)
($34)
$38
Debt
Defeasance Premium
Net Proceeds
$0
$0
$165
($147)
($25)
$153
LCMC
Cash at Closing
Bonds
Assumed
Summary of Bids
Transaction Value - Both Hospitals
Dollars in Millions
HCA
Prepaid Lease Payment
Bonds Paid Off
Defeasance Fund
$575
$2
$83
Net Working Capital Surplus
Cash Delivered at Closing
Present Value of Property Taxes
Transaction Value at Closing
$13
$673
$194
$867
Plus PV of Capital over 15 yrs.
Total Transaction Value
$490
$1,357
Community Fund
Summary of Bids
Net Proceeds - Both Hospitals
Dollars in Millions
Bonds Paid Off
HCA
Cash at Closing
$673
Cash on Hand
$229
Bond Defeasance
($381)
Trustee Held Funds
$110
Pension
($66)
Other Liabilities
($10)
Net Cash at Closing
$555
PV of Property Taxes
$194
Net Proceeds on a PV Basis
$749
Summary of Bids
Transaction Value - Individual Hospitals
Dollars in Millions
HCA
Cash Delivered at Closing
PV of Property Taxes
Transaction Value at Closing
Plus PV of Capital over 15 yrs.
Total Transaction Value
Bonds Paid Off
East
$336.5
$97
$433.5
$245
$678.5
West
$336.5
$97
$433.5
$245
$678.5
Summary of Bids
Net Proceeds - Individual Hospitals
Dollars in Millions
HCA
Bonds Paid Off
East
West
Cash at Closing
$336.5
$336.5
Cash on Hand
$130
$99
Bond Defeasance
($209)
($172)
Trustee Held Funds
$72
$38
Pension
($32)
($34)
Other Liabilities
($7)
($3)
Net Cash at Closing
$290.5
$264.5
PV of Property Taxes @ 5%
$97
$97
Net Proceeds on a PV Basis
$387.5
$361.5
Summary of Bids
Transaction Value/Net Proceeds
Reconciliation – Both Hospitals
Dollars in Millions
Bonds
Assumed
Bonds Paid Off
HCA
LCMC
LCMC
Transaction Value
at Closing
$867
$449
$418
Plus Cash
$229
$229
$229
Less Debt Paid
($381)
($381)
$0
Debt Assumed
$0
$0
($305)
Trustee Held Funds
$110
$110
$110
Pension
($66)
($66)
($66)
Other Liabilities
($10)
($10)
($10)
Net Proceeds
$749
$331
$376
Summary of Bids
Transaction Value/Net Proceeds
Reconciliation – Individual Hospitals
Dollars in Millions
Bonds Paid Off
HCA
(East)
HCA
(West)
LCMC
(West)
Bonds Assumed
Ochsner
(East)
LCMC
(West)
Ochsner
(East)
Transaction Value
at Closing
$433.5
$433.5
$225
$208
$212
$208
Plus Cash
$130
$99
$99
$128
$99
$128
Less Debt Paid
($209)
($172)
($172)
($204)
$0
$0
Debt Assumed
$0
$0
$0
$0
($147)
($167)
Trustee Held Funds
$72
$38
$38
$70
$38
$58
Pension
($33)
($32)
($33)
($34)
($33)
($33)
Other Liabilities
($7)
($3)
($4)
($8)
($4)
($8)
Net Proceeds
$387.5
$361.5
$153
$160
$165
$186
Summary of Bids
Capital Commitment
Comparison of Bids
Dollars in Millions
Capital
Commitment
First 10 years
Years 11 to 15
Years 16 to 30
HCA
$450
Unknown
Unknown
LCMC
Ochsner
$450
$450
$225
$225
Unknown
$675
Ochsner Credit Analysis
Dollars in Millions
Ochsner
2013 Net Revenue
$2,000
(estimated)
EBDIT Margin 2012
EBDIT Margin 2013
4%
7%
(based on 9 mos. Actual)
Long Term Debt
LTD as a % of Revenue
$634
32%
Unfunded Pension Liability
Unfunded Pension as a % of Revenue
Cash on Hand Before Transaction
$151
8%
$364
Ochsner Credit Analysis
Lease for East Jefferson
Dollars in Millions
Ochsner
Transaction Value
Present Value of Capital for 15 yrs.
$208
$208
Present Value of Transaction Cost,
First 15 yrs. Only
$416
Ochsner Credit Analysis
Lease for East Jefferson
Dollars in Millions
Ochsner
Cash
Days
Cash on
Expenses
Hand
Ochsner as of 12/31/13
$364
$1,8651
71 days
Ochsner plus East Jefferson
as of 12/31/13
$364
$2,2251
60 days
Post Transaction East –
Bonds Paid Off2
$156
$2,2251
26 days
1Prorated
based on 9 mos. data
2Assumes payment of $208MM at closing
LCMC Credit Analysis
Dollars in Millions
LCMC
2013 Net Revenue
Adjusted EBDIT Margin 2013
$940
0%
Projected EBDIT Margin 2014
Long Term Debt as a % of Revenue
Cash on Hand Before Transaction
3%
37%
$1.1Billion
LCMC Credit Analysis
Lease for Both Hospitals
Dollars in Millions
Bonds
LCMC
Assumed
Transaction Value
$418
Present Value of Capital
for 15 yrs.
Present Value of
Transaction Cost, First
15 yrs. Only
Bonds
Paid Off
$449
$490
$490
$908
$939
LCMC Credit Analysis
Lease for West Jefferson
Dollars in Millions
LCMC
Transaction Value
Present Value of Capital
for 15 yrs.
PV of Transaction Cost,
First 15 yrs. Only
Bonds
Assumed
$212
Bonds
Paid Off
$225
$232
$232
$448
$457
LCMC Credit Analysis
Lease for Both Hospitals
Dollars in Millions
LCMC
Cash
Days Cash
Expenses on Hand
LCMC as of 12/31/13
$1,135
$674
614 days
LCMC plus East & West
Jefferson as of 12/31/13
$1,135
$1,263
328 days
Post Transaction East & West
Jefferson – Bonds Paid Off*
$686
$1,263
198 days
*Assumes payment of $449MM at closing.
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.
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.
Proposed Selection Criteria
The #1 Criteria for Selecting
a Winning Bid is,
“What is best for the people
of Jefferson Parish?”
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?”
Proposed Selection Criteria
Report Card
Loss of Control
Current Credit
Strength
Management
Expertise - Finance
Management
Expertise - Quality
Guaranty
HCA
F
LCMC
F
Ochsner
F
A
B
C
A
C
C
B
B
A
A
B
C
Proposed Selection Criteria
Report Card
HCA
A
LCMC
C
Ochsner
C
Anti-trust Risk
A
D
D
Mission Compatibility
C
B
B
NA
3.125
NA
2.125
NA
2.0
Transaction Value
For-Profit vs
Not-for-Profit
GPA
Proposed Selection Criteria
What is credit strength?
Can they
afford this?
What is their
current credit
strength?
What is their
future credit
strength, if
they do this
deal?
HCA
LCMC
Ochsner
Both
Hospitals
Yes
No
NA
One
Hospital
Yes
Maybe
Maybe
Strong
Average
Marginal
Both
Hospitals
Strong
Weak
NA
One
Hospital
Strong
Marginal
Marginal
Next Steps
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Select Winning Bidder
Retain Transaction Team
Due Diligence
Definitive Agreement
Closing
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.
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.
Questions and Answers