The Bond buyer | December.08.2017
In a deal shaped by an Orrick team’s legal guidance, Kaiser Permanente's massive $4.2 billion bond sale won The Bond Buyer’s overall 2017 Deal of the Year Award. Our Public Finance team served as bond counsel to the California Health Facilities Financing Authority (CHFFA) with respect to the tax-exempt bonds and as special finance counsel to Kaiser with respect to the taxable bonds.
The transaction represented the largest aggregate financing by a 501(c)(3) healthcare institution, the largest taxable issuance by a 501(c)(3) healthcare institution, and the largest Green Bond issuance by any healthcare organization. Click here to see a video about the transaction.
During the awards gala on December 6 in New York, Bond Buyer Editor-in-Chief Michael Scarchilli said, "This year, our editorial board has selected a deal that, had it not yet been completed, would be under threat by the pending legislation in Washington. It’s a milestone, record-breaking transaction that represented a triumphant return to the public markets after half a decade away."
CHFFA was the conduit issuer of the approximately $2.1 billion tax-exempt portion of the transaction and Kaiser directly issued the remaining portion of the bonds on a taxable basis. The bonds were issued in a mix of fixed and variable rate bonds to finance capital improvements at various Kaiser health facilities throughout California and to refinance multiple issues of Kaiser’s then-outstanding indebtedness. The highlight of the capital improvement financing was Kaiser’s San Diego Medical Center (SDMC). SDMC is a new, 617,215 square foot, state-of-the-art, LEED Platinum, full service medical center with a 461 hospital bed capacity, providing health care to residents in San Diego County.
The transaction, which also received the Healthcare Deal of the Year award, was Kaiser’s first public bond offering since 2012 and required a full update of Kaiser’s disclosure, some nimble tax structuring, two full days of on-site tax and disclosure due diligence and many hours of off-site due diligence review.
The transaction demonstrated Orrick’s unrivaled depth and breadth of expertise in the not-for-profit healthcare finance sector and deep bench in this space that is not shared by any other law firm. Our team was led by Brandon Dias and Rich Moore and included John Myers, Mayling Leong, Brendan LaFountain, Sue Chang, Melissa Warr, Coty Lutz, Kathleen Jacobe and Heather Magennis.
The Bond Buyer also recognized our work on behalf of the Bay Area Toll Authority in its $1.9 billion sale in August as Far West Deal of the Year.
Orrick has represented the Bay Area Toll Authority (BATA) over the past decade as it has issued more than $13.7 billion of bond financings and refinancings as part of the San Francisco Bay Area Toll Bridge Seismic Retrofit Program. The Seismic Retrofit Program has provided critical funding for retrofitting seven Bay Area bridges, including the San Francisco-Oakland Bay Bridge. After more than a decade of bond issuance, the Seismic Retrofit Program is nearly complete, and BATA is preparing to go to the voters for approval of a new regional measure to authorize financing of a new round of toll bridge and transportation infrastructure projects.
BATA and our team of Devin Brennan, Justin Cooper, Chas Cardall, Christine Reynolds, Mary Collins, Nik Mathews, Andrea Greenwald and Bonita McAlpine had three goals for the financing: 1) enter the market as quickly as possible to take advantage of a strong rate environment; 2) create the optimal amortization structure utilizing both the Term Rate Refunding Bonds and Fixed Rate Refunding Bonds to maximize savings and streamline BATA’s debt profile; and 3) sell as many low coupon refunding bonds as the market would buy.
All three goals were met. In just under six weeks, the team pulled together legal and disclosure documents, received ratings, engaged in a multi-city investor roadshow and priced and closed the bonds. Of the $1.4 billion of fixed rate refunding bonds that were issued, $1.2 billion are callable with a 4.00% or lower coupon. The Authority focused on low coupon refunding bonds to align its debt portfolio with its outlook on future interest rates while providing additional cashflow savings when compared to a standard premium coupon structure. The fixed rate refunding generated more than $324 million of cashflow savings and $143 million NPV savings.