N.C.G.S.

§ 131E-26(b) Guaranty Approval Request to NC Local Government Commission

June 4, 2019
INTRODUCTION
Anthony C. DeFurio
Executive Vice President & Chief Financial Officer

R Mark Keener
Vice President, Treasurer

Chris Nordberg
Assistant Vice President, Financial Services

Allen Robertson, Robinson Bradshaw

Atrium Health Bond Counsel

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MISSION:
TO IMPROVE HEALTH
E L E VAT E HOPE
A N D A D VA N C E HEALING
- FOR ALL

VISION:
TO BE THE FIRST AND BEST CHOICE FOR CARE

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 Atrium Health Size & Scope

69,800+ Teammates 50 Hospitals

44 Urgent Care Locations 45 EDs 25 Cancer Care Locations

3,700+ Physicians 17,000+ Nurses

$11.1 Billion $2.9 Billion Invested into renovations, new care

locations, equipment upgrades and other
Net Operating Revenue In last 5 years capital projects

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Note: These numbers are for the Primary Enterprise/Obligated Group and all Managed Enterprises
*Note: Includes Joint Venture and Affiliated Enterprises
 October 2018, S&P affirmed the AA-
September 2018, Moody’s affirmed the
rating for Atrium Health, keeping the
Aa3 rating for Atrium Health with a
outlook as stable. Positive factors
stable outlook. This was attributed to
included continued healthy operating
factors such as Atrium Health’s history
profile, highlighted by sustained volume
of strong and stable operating
growth and service line demand and
performance and cash flow, and a highly
favorable fundamentals within its core
liquid balance sheet.
Charlotte service area.

Financial Success
Atrium Health has a long-standing record of financial stability as evidenced by its
double A (Aa3 and AA-) ratings since its initial bond rating in 1983.
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 Navicent Health Overview
• Effective January 1, 2019, Navicent Health, Inc. and its affiliates became part of the Atrium Health system when Atrium Health,
through a controlled affiliate, became the sole member (effectively, the corporate parent) of Navicent Health.
• Navicent Health is a nonprofit corporation headquartered in Macon, Georgia.
• Navicent Health and its affiliates serve a population of 750,000 across 30+ locations and include:
– Network of 5 hospitals
– 970 licensed beds for medical, surgical, rehabilitation and hospice purposes
– 700 physicians and 4,500 employees
– Total annual revenues are approximately $875 million
– Net assets of approximately $1 billion
• In addition to the benefits Atrium Health will receive from creation of a single credit group, the addition of Navicent Health
benefits Atrium Health in other significant ways, including:
– Access to a greater number of covered lives for future risk-based contracting and population health management
– Leveraging of fixed infrastructure including information technology systems to reduce cost / improve efficiency
– Broadening clinical footprint, resulting in expanded research / innovative care for pediatric services and enhanced clinical
trials in oncology services
– Enhanced ability to secure federal contracts for quality programs where CMS favors a broad geography / multiple states
– Significant expected incremental addition to Atrium Health’s Earnings Before Interest, Taxes, Depreciation and Amortization
(“EBITDA”) of approximately $1 billion over the next 10 years
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 Navicent Health Refunding Debt Structure

• The Charlotte-Mecklenburg Hospital Authority d/b/a Atrium Health is requesting the Local Government Commission approve the issuance
by Atrium Health pursuant to N.C.G.S. § 131E-26(b) of a guaranty of certain refunding debt and related interest rate swaps of Navicent
Health.

• In the Member Substitution Agreement between Atrium Health and Navicent Health, the parties agreed that they should form a single
credit group for borrowing purposes.

• To accomplish this, Navicent Health and each of its affiliates would become Members of the Obligated Group under the Atrium Health
Bond Order by signing a Member Guaranty Agreement. Under the terms of the Member Guaranty Agreement, Navicent Health and each
of its affiliates would guaranty and become jointly and severally liable for the approximately $2.1 billion of bonds currently outstanding
under the Atrium Health Bond Order.

• The Member Substitution Agreement provides that Atrium Health and the other current Members of the Obligated Group simultaneously
would become jointly and severally liable for Navicent Health’s outstanding debt ($240 million tax-exempt and $60 million taxable).

• To accomplish this and generate debt service savings, Atrium Health proposes to issue a guaranty of up to $306 million Navicent Health
refunding tax-exempt and taxable debt and two associated interest rate swap agreements with notional amounts of approximately $60
million. This is the guaranty for which Atrium Health is seeking approval at today’s Local Government Commission meeting.

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 Benefits of Guaranty to Atrium Health and
Navicent Health

• Navicent Health will benefit from borrowing at a lower rate and on better terms by virtue of being part of Atrium Health’s Aa3 / AA- rated
credit group, with projected net present value savings of approximately $29 million or 9.8% of refunded debt based upon market
conditions on May 15, 2019.

• The creation of a single credit group will benefit Atrium Health in that:
– The Member Guaranty Agreements to be signed by Navicent Health and its affiliates broadens the Obligated Group and improves its
ability to service all debt of the group through the addition of Navicent Health’s approximately $1 billion net worth at December 31,
2018, including approximately $630 million of unrestricted cash and investments, which is well in excess of their existing debt.
– It allows Atrium Health to avoid the significant administrative cost burden and potential capital market confusion of publishing two
sets of quarterly and annual financial statements, one for Atrium Health’s Primary Enterprise and one for its Obligated Group.
– A single credit group continues the ability to obtain the low-cost capital needed to compete in today’s competitive health care
landscape that includes well-capitalized for-profit competitors such as HCA and significantly larger health care disrupters such as
Optum, Apple and CVS Health / Aetna, among others.

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 Guaranty of Navicent Health Refunding Debt
Pursuant to N.C.G.S. § 131E-26(b)

• N.C.G.S. 131E-32(c) provides that, in determining whether to approve a borrowing (in this case, a guaranty) under N.C.G.S. 131E-26(b), the
Local Government Commission shall consider whether Atrium Health can demonstrate the financial responsibility and capability to fulfill
its obligations with respect to such guaranty.

• N.C.G.S. 131E-32(c) provides that the LGC may approve Atrium Health’s application for issuance of this guaranty if it makes the following
five findings, and Atrium Health respectfully submits that its application supports all of these findings:
– 1. The purpose of the guaranty (to enable Navicent Health and Atrium Health to form a single, unified credit group that results in
interest cost savings for Navicent Health and other significant benefits for Atrium Health) is necessary and expedient
– 2. The guaranty, under the circumstances, is preferable to a bond issue by Atrium Health for the same purpose (Navicent Health
continues to own or lease its facilities, and the N.C. Revenue Bond Act only permits financing of facilities owned or leased by the
issuing unit)
– 3. The sums to fall due under the guaranty are adequate and not excessive for the proposed purpose (Atrium Health’s proforma debt
service coverage ratio noted in the application would remain strong at 6.32 even if Atrium Health were required to make payments
under the guaranty)
– 4. The authority's debt management procedures are good (this has always been the case for Atrium Health)
– 5. The authority is not in default on any of its debt service obligations (Atrium Health has never defaulted (or experienced covenant
violations) on its debt obligations)

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 Guaranty of Charlotte Surgery Center, LLC Refinancing
Bank Loan Pursuant to N.C.G.S. § 131E-26(b)

• The Charlotte-Mecklenburg Hospital Authority d/b/a Atrium Health is requesting the Local Government Commission approve the issuance
by Atrium Health pursuant to N.C.G.S. 131E-26(b) of a guaranty of a refinancing bank loan to Charlotte Surgery Center, LLC (“CSC”), a joint
venture in which Atrium Health has a 45% ownership interest.
• Atrium Health’s guaranty of the $22,250,000 refinancing bank loan will be limited to its 45% ownership interest, or $10,012,500, and will
allow CSC to refinance its current lines of credit into a single permanent loan with First Citizens Bank. As part of the refinancing, CSC will
repay the existing Atrium Health line of credit promissory note.
• N.C.G.S. 131E-32(c) provides that the LGC may approve Atrium Health’s application for issuance of this guaranty if it makes the following
five findings, and Atrium Health respectfully submits that its application supports all of these findings:
– 1. The purpose of the guaranty (to enable CSC to obtain the most cost effective and beneficial loan terms and consolidate its lenders)
is necessary and expedient
– 2. The guaranty, under the circumstances, is preferable to a bond issue by the Authority for the same purpose (CSC leases its
facilities, and the N.C. Revenue Bond Act only permits financing of facilities owned or leased by the issuing unit)
– 3. The sums to fall due under the borrowing are adequate and not excessive for the proposed purpose (Atrium Health’s proforma
debt service coverage ratio noted in the Application remains strong at 6.70 if Atrium Health was ever required to pay off the
maximum amount guaranteed in a single payment)
– 4. The authority's debt management procedures are good (this has always been the case for Atrium Health)
– 5. The authority is not in default on any of its debt service obligations (Atrium Health has never defaulted (or experienced covenant
violations) on its debt obligations)

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