D-H Obligated Group Case Study

A special meeting of the Committee was called to further discuss the New London Hospital Association, Inc. (NLHA) membership in the D-H Obligated Group. Members of the Committee discussed concerns related to due diligence for NLHA, funding of pension obligations and offsetting controls within the structure of the group.

Dartmouth Hitchcock completes an extensive review of potential Affiliate’s considered for membership into the D-H Obligated Group. This includes outstanding debt of the Organization including balances, rates, call provisions, swap agreements and any termination provisions. Once D-H Management has completed their due diligence and determined that an Affiliate would be a suitable candidate for membership, the D-H Board must vote to allow extension of membership to that Affiliate and the Affiliate Board must also agree to membership.

The
Committee decided to ask D-H to share their due diligence work related to Affiliates under consideration for admission to the D-H Obligated Group. This information would allow current members to review pertinent information for Affiliates under consideration. The Committee discussed potential D-H pension obligations, and reviewed the most recent consolidated audited financial statements noting assets and liabilities. It was noted that by December 2017, all participants of the D-H Defined Benefit Plans will cease to earn benefits under the plan.

The Committee explored benefits related to joining the Obligated Group and asked Mr. Griffin to share correspondence with Mr. Waters, Director of Treasury and Investment at DHMC, related to follow up questions from the January 26 presentation given to the Finance Committee. Follow up questions related debt ratios, collateral, interest rates and changes related to the NLHA Swap agreement. Per correspondence with Mr. Waters:

1) The goal of the D-H Obligated Group is to have all members of the group experience the same fixed debt ratio.
D-H currently has a lower ratio than that of NLHA; inclusion to the group should allow NLHA to enjoy the same ratio as D-H.

2) Current D-H debt agreements only extend to their receivables, whereas the current debt agreements between NLH and Citizens Bank include receivables and a mortgage on the property of the Organization. Joining the D-H Obligated Group will provide greater borrowing power for all within the group. Current agreements will be revisited after NLHA becomes a member of the group to explore the possibility of extending similar collateral requirements to NLHA.
3) NLHA should expect to receive a lower overall interest rate after joining the D-H Obligated Group. Per Mr. Waters, NLHA should expect to see annual savings in the vicinity of $100k.

4) Membership in the D-H Obligated Group should not have an effect on the current swap agreement. In the future savings could potentially occur from making changes to the swap, but at the current time costs exceed potential
benefits.

The Committee further discussed joining the D-H Obligated Group noting that potential benefits outweighed risk. Additional follow up questions related to review of due diligence for new members of the D-H Obligated Group and departure proceeding, should they become necessary, will be sent by Mr. Griffin to Ms. Naimie and Mr. Waters at D-H and shared with the Committee.

A motion was brought forth to recommend NLH admission of the D-H Obligated Group to the full board which was seconded and unanimously approved by the Committee members attending the meeting.

Note: an email was received from Mr. Pitkin at 11:23 am asserting his support for NLH admission to the D-H Obligated Group as he was unable to attend in person.

The meeting was adjourned at 10:35 a.m.