Since 1895. Member SIPC and NYSE. Capital Markets Conditions and the Implication to Borrowers Presented to: Wisconsin HFMA 2015 Fall Institute September

Since 1895. Member SIPC and NYSE.

Capital Markets Conditions and the Implication to Borrowers

Presented to:Wisconsin HFMA 2015 Fall InstituteSeptember 17, 2015 Nessy Shems

Managing DirectorPiper Jaffray & Co.

312.267.5021

2

Capital Markets Perspective

All Eyes on the Fed

3

The FOMC will release a statement later today with a decision to raise rates for the first time since 2006

The most anticipated Fed meeting in years Investors are divided on whether the Fed will tighten monetary policy or wait longer “Has the U.S. economy improved enough to absorb higher rates, or does the fragile

state of the world economy and the financial markets call for more patience?”The Wall Street Journal, September 6, 2015

Source: Bureau of Labor Statistics, Piper Jaffray

The Benefit of Patience

4Source: WSJ, September 10, 2015

When the Fed begins to raise rates, they’ve plainly stated that the pace will be glacial

• Although US unemployment has fallen considerably, the Fed has been slower to raise interest rates than other central banks

The Swedish Case

• In July 2010 Sweden began raising rates from 0% - 0.25% because its economy was growing and their central bank was concerned that cheap money was allowing household debt to grow too quickly

The EU Case

• During 2011, the European Central Bank increased rates over concerns that higher energy prices would trigger wage increases

Both economies saw inflation fall and their economies slow

“Three sentences From Deutsche Bank's Jim Reid Nail the Reason Why Markets Are So Terrifying”

5

“One of the biggest problems we face is that there is no historical

template for current global market conditions so we’re all flying

blind to a large degree. Never before have so many of the most

important countries in the world printed so much money and

left base rates at near zero for so long. Also never before has

the largest economy in the world tried to start a slow process of

reversing said extraordinary policy.”

Jim Reid Global Head of the Fundamental Credit Strategy Group and StrategistDeutsche Bank

Source: Business Insider, September 2, 2015

Global Market Turmoil Complicates the Fed’s Decision

6

People are generally upbeat on the US economy• Decent GDP growth at about 2.5%

• Good job growth, notwithstanding the August jobs report

But…• Growth is slowing in many developing countries

• China’s slowing economy has whipsawed global markets this summer

• China accounts for half of global base metal consumption

Source: WSJ, September 14, 2015

The Yield Curve is Flattening

7Source: US Department of Treasury, Piper Jaffray

Low inflation, global economic weakness and flight to safety has pushed yields lower• Flatter yield curve as short end of the curve

has bumped higher and long end pushed lower

• 2 year notes have risen for the last five months

• Portfolio managers are generally selling short-term maturities and buying longer-term maturities

Historical Treasury Yields

Treasury Yield Curves

YTD Bond Total Returns Beat Equities

8

Source: WSJ, August 24, 2015

Many predicted holding bonds in 2015 would be a money loser

• The 10 year treasury fell from a high of 2.5% in June to the 2.2% range

• We were at 2.17% at the end of 2014

Investors poured $1.34 billion into mutual funds targeting Treasuries at the end of August

Is the Bond Bull Market Over?

9Source: US Department of Treasury, Piper Jaffray

Ten year Treasuries (1962 – September 11, 2015)

Higher US rates would boost the US dollar and attract money out of emerging markets

• US rates are already higher than in UK, Germany and Japan

• Foreign currencies have already plummeted

10

Municipal Bond Market Perspective

Municipal Issuance Has Been Strong in 2015…Variable rate issuance has declined.Municipal volume is up YTD in 2015.

Overall municipal issuance by month – 2012 through early September 2015.

11

Bill

ion

sB

illio

ns

Bill

ion

s

$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

Fixed Variable

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-1

2

Sep-

12

Oct

-12

Nov-1

2

Dec-1

2

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13

Jul-1

3

Aug-1

3

Sep-

13

Oct

-13

Nov-1

3

Dec-1

3

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-1

4

Sep-

14

Oct

-14

Nov-1

4

Dec-1

4

Jan-

15

Feb-

15

Mar

-15

Apr-1

5

May

-15

Jun-

15

Jul-1

5

Aug-1

5

Sep-

15

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

Tax-Exempt Taxable

Source: The Bond Buyer

…Mainly Due to Refundings Which Have slowed Down

12Source: The Bond Buyer

Healthcare Market Trends

Healthcare issuance YTD 2015 has surpassed the volume YTD for 2013 and 2014 by a significant margin.

The healthcare market has continued to favor fixed-rate debt to lock in historically low rates and reduce risk in capital structures.

Historically low general market yields have increased investor demand for healthcare bonds.

Fixed Rate Healthcare Issuance2012-Early September 2015

Fixed Rate vs. Variable Rate Issuance – Healthcare2012-Mid August 2015

Bill

ion

s

13

Bill

ion

s

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

2012 2013 2014 2015 Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov-1

2

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov-1

3

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov-1

4

Jan-

15

Mar

-15

May

-15

Jul-1

5

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

Fixed Variable


Midwest Issuance is Higher


Through June, Wisconsin volume is higher

• Overall issuance is up 53%

• Health care issuance is up 59% due to larger transaction size, not more issuance

Rates Are Still Near Historic Lows…

15

The interest rate market remains very attractive for borrowers, with rates remaining near all-time lows.


…And Healthcare Credit Spreads Have Tightened…


…Most Health Care Providers Are Borrowing Under 5%...

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Rating A+ A A- BBB+ BBB BBB-

All in Cost of Capital(1)4.19% 4.25% 4.32% 4.42% 4.55% 4.67%

4.19%4.25% 4.32%

4.42%

4.55%

4.67%

3.90%

4.00%

4.10%

4.20%

4.30%

4.40%

4.50%

4.60%

4.70%

4.80%

A+ A A- BBB+ BBB BBB-

All-in Cost of Capital by Rating

(1) Assumes a 30-year, level debt service financing, with a standard 10-year call feature and total costs of issuance of 2% par amount.

Source: Piper Jaffray

…While Covenants Have Loosened

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Sale DatePar

(000s)Ratings (M/S/F)

Underlying Ratings (M/S/F)

Hospital StateFinal

MaturityMortgage DSRF Liquidity Covenant (Days)

Debt to Cap Covenant

Rate Covenant

Feb 3, 2015 41,575$ nr/BBB-/nr nr/BBB-/nr Comanche Cnty Mem Hosp OK 2029 No Yes 125%of MADS No 1.10x

Feb 18, 2015 90,615$ Baa1/nr/A- Baa1/nr/A- Butler Health System PA 2039 Yes No 90 days consultant No 1.10x

Feb 19, 2015 36,885$ nr/BBB+/nr nr/BBB+/nr Freeman Health System MO 2035 No Yes 50 consultant, 25 default No 1.10x

Mar 10, 2015 60,000$ nr/nr/BB nr/nr/BB Memorial Health System OH 2043 Yes Yes 55 consultant, 45 default .70 consultant 1.25x

Mar 16, 2015 286,435$ Baa1/nr/BBB+ Baa1/nr/BBB+ Silver Cross Hospital and Med Centers IL 2044 Yes No 80 consultant No 1.10x

Mar 19, 2015 26,895$ nr/A+/nr nr/nr/nr Marshall Med Center CA 2033 Yes Yes 45 consultant No 1.25x

Mar 31, 2015 158,155$ Baa2/BBB/nr Baa2/BBB/nr Boston Medical Center MA 2045 Yes Yes 0 No 1.10x

Apr 15, 2015 44,900$ Aaa/AA+/nr nr/nr/nr Hosp for Special Surgery NY 2031 Yes No 0 No na

Apr 15, 2015 93,800$ Baa1/BBB+/BBB+ Baa1/BBB+/BBB+Catholic Health System NY 2045 Yes Yes 30 consultant No 1.25x

Apr 15, 2015 115,145$ nr/A-/BBB+ nr/A-/BBB+ Halifax Health FL 2046 No No 0 No 1.15x

Apr 22, 2015 103,895$ Baa1/nr/BBB+ Baa1/nr/BBB+ Central Washington Health Services WA 2039 Yes No Excess Margin / Cushion Ratio No 1.10x

Apr 22, 2015 31,960$ nr/BBB-/nr nr/BBB-/nr NorthBay Healthcare CA 2044 Yes Yes 60 consultant No 1.10x

Apr 28, 2015 107,290$ Baa1/nr/nr Baa1/nr/nr Tallahassee Mem HealthCare FL 2044 No No 0 No 1.15x

Apr 29, 2015 66,100$ Ba1/nr/BB+ Ba1/nr/BB+ Orange Regional Med Center NY 2045 Yes Yes 30 days consultant No 1.10x

May 6, 2015 115,000$ Aaa/AA+/nr nr/nr/nr Univ of New Mexico Hospitals NM 2032 Yes No 0 No na

May 14, 2015 122,319$ Baa1/BBB/nr Baa1/BBB/nr Westchester Cnty HC Corp NY 2035 Yes No 1.25x Cushion Ratio No 1.25x

May 21, 2015 50,850$ nr/nr/nr nr/nr/nr Greater Philadelphia Health Action PA 2050 Yes Yes 45 consultant No 1.25x

May 28, 2015 453,470$ Baa2/nr/BBB Baa2/nr/BBB Albert Einstein Healthcare PA 2046 Yes No 0 No 1.10x

Jun 3, 2015 120,260$ Baa1/A-/nr Baa1/A-/nr Community Medical Centers CA 2046 Yes No 0 No 1.10x

Jun 10, 2015 142,455$ nr/BBB-/BBB- nr/BBB-/BBB- HealthEast Care System MN 2044 Yes No 40 days, increasing to 65 in 2018 No 1.20x

Jun 17, 2015 252,820$ Baa1/nr/BBB+ Baa1/nr/BBB+ Ochsner Clinic LA 2045 Yes No 0 No 1.10x

Jun 24, 2015 257,300$ nr/BBB/BBB nr/BBB/BBB Meritus Med Center MD 2045 Yes No 50 consultant No 1.10x

Jul 29, 2015 92,470$ Baa3/nr/BBB+ Baa3/nr/BBB+ Owensboro Health KY 2050 Yes Yes 70 consultant, 50 default No 1.20x

Jul 30, 2015 114,800$ Baa1/nr/BBB+ Baa1/nr/BBB+ Ochsner Clinic LA 2047 Yes No 0 No 1.10x

Jul 31, 2015 44,915$ Baa1/nr/nr Baa1/nr/nr North Memorial Health Care MN 2035 No No 0 No 1.10x

Aug 25, 2015 15,820$ nr/BBB-/nr nr/BBB-/nr Beebe Med Center DE 2030 Yes No 45 consultant No 1.10x

Aug 27, 2015 105,000$ Baa1/BBB+/nr Baa1/BBB+/nr Martin Mem Med Center FL 2045 Yes No 75 consultant No 1.10x


Meanwhile, Municipals Have Lagged Behind the Treasury Rally…

19

10 Yr. MMD1

(2025)

20 Yr. MMD1 (2035)

30 Yr. MMD1 (2045)

10 Yr. Treasury

30 Yr. Treasury 10 Yr. Ratio 30 Yr. Ratio

2-Jul 2.32 3.06 3.33 2.383 3.187 97.36% 104.49%

10-Jul 2.32 3.05 3.31 2.398 3.190 96.75% 103.76%

17-Jul 2.29 3.00 3.25 2.348 3.083 97.53% 105.42%

24-Jul 2.23 2.93 3.19 2.263 2.963 98.54% 107.66%

31-Jul 2.19 2.88 3.12 2.181 2.907 100.41% 107.33%

7-Aug 2.21 2.87 3.08 2.163 2.819 102.17% 109.26%

14-Aug 2.20 2.87 3.07 2.199 2.842 100.05% 108.02%

21-Aug 2.13 2.80 3.00 2.037 2.724 104.57% 110.13%

28-Aug 2.16 2.88 3.10 2.182 2.912 98.99% 106.46%

4-Sep 2.18 2.88 3.11 2.125 2.884 102.59% 107.84%

Change 0.02 0.00 0.01 (0.057) (0.028) 3.60% 1.38%1 Source: Thompson Reuters, Piper Jaffray


Municipals are attractive to cross over buyers

Another upside: • Steeper Treasury yield curve has made escrows for issues with longer call dates more efficient

…While Municipals are Growing More Hesitant Ahead of the Fed

20Source: MMA, September 8, 2015

Munis have seen the second largest outflow of the year amid equity volatility

• Low yields continue to turn off retail buyers

August was the worst month for bond trading on record

• Vacations or pre-rate hike jitters?

There is an Upside

21

Rates are still attractive– creating another upswing in refunding volumes

Flatter yield curve

• Escrows for issues with longer call dates becoming more efficient

22

Direct Placement Issuance

Private Placements Have Taken A Larger Share of the Market

23

2010 2014

Municipals Loans and Securities Held by Banks

24

Private Placement Structure Overview

Because of the low interest rate environment and their ability to borrow funds from the Federal Reserve at extremely low interest rates, Banks have become significant buyers for Healthcare Securities/Loans for placement in their loan portfolios

Banks have become increasingly aggressive lenders as their ability and willingness to lend for more traditional loans has slowed.

Many banks are willing to commit to loans of up to 15 years with a fixed interest rate.

In addition, banks have not been requiring debt service reserve funds and providing flexibility on redemption features.

Benefits of this structure include:• Lower interest rate than traditional bond market

• No official statement or Appendix A

• No rating

• No debt service reserve fund

• No significant covenant changes

• Drawdown structure available

• Forward rate locks available

• Competitive structure and rate process

Considerations / New Developments

Banks continue to have a strong appetite for the healthcare sector

• New players are coming into the market and adding expertise

• Banks are offering natural fixed rates but they will get aggressive with use of derivatives

• Banks are experiencing strong loan demand so they can afford to be selective

• They will shy away from speculative or story credits, negative trends, high leverage, overly complex situations

• Ancillary business is a strong consideration for large loan requests or weaker credits

• Appetite/execution can vary by region (i.e. select banks that can offer forward rate lock aren’t lending everywhere)

• Certain banks fill up on health care or non bank-qualified loans during the year

26

Taxable Market Update

27

Significant increase in health care taxable debt issuance driven by multiple factors:• Spread compression between taxable and tax-exempt rates

• Growing frustration with IRS post-issuance monitoring and audit

• Evolving nature of business complicates pure “good use” expenditures

• Access to 30+ year financing

• Debt structuring flexibility

Taxable Issuance Considerations

28

Private Placement:• No issuer

• Limited disclosure

• Typically less than $200 million

Taxable Municipal:• Utilizes municipal issuer

• Permits exemption from state income tax

• Typically more traditional serial/term bond structure

• At lower issuance levels, may permit 10-year call feature

Corporate CUSIP:• No issuer process

• Typically aimed at larger transactions

• At $250 million or higher is considered “index eligible” which widens buyer base to broader corporate bond investors

• Make-whole call feature

• Typically structured as “bullet” maturity

Trinity Health 2/5/2015

(Aa3/Aa-/AA)

Mission Health 2/27/2015

(Aa3/AA-/AA-)

Froedert Health

3/9/2015 (AA-/AA-)

McLaren Health

3/18/2015 (Aa3/AA-)

Baylor Scott & White

4/15/2015 (Aa3/AA-)

Mercy Health4/22/2015 (A1/AA-)

HealthPartners6/11/2015

(A2/A)

+0

+50

+100

+150

+200

+250

+170+175

+200 +195

+165

+140

+205

2027

29

2044

2045

2038

2044

2025

2025

Recent High Grade Public Taxable Healthcare PricingsSp

read t

o T

reasu

ry

30

Recent Public Taxable Healthcare Financings

Date Par Amount Borrower Rating (M/S/F) Structure Pricing Spread10/7/2014 888,000,000 Dignity Health A3/A/A 2044 +123

10/30/2014 300,000,000 Children's Hospital of Cincinnati Aa2/AA/AA 2044 +2201/22/2015 80,110,000 Queen's Health A1/AA-/NR 2045 +2001/29/2015 750,000,000 The New York and Presbyterian Hospital Aa3/NR/AA 2045 +1701/29/2015 300,000,000 Partner's Health Aa3/AA/AA 2055 +1701/30/2015 100,895,000 Medstar A-/A/A- 2016-2031 +1952/4/2015 550,000,000 Memorial Sloan Kettering Aa3/AA-/AA 2055 +1852/5/2015 350,000,000 Trinity Health Aa3/AA-/AA- 2045 +1702/5/2015 50,175,000 Mission Health System Aa3/AA-/AA- 2016-2028 +1753/9/2015 100,000,000 Froedtert Health NR/AA-/AA- 2045 +200

3/18/2015 96,295,000 McLaren Health Aa3/NR/NR 2016-2038 +195 4/15/2015 549,935,000 Baylor, Scott & White Aa3/AA-/NR 2020, 2025, 2045 +80, +120, +1654/17/2015 300,000,000 Texas Health Resources Aa2/AA/NR 2055 +1674/22/2015 150,000,000 Mercy Health A1/AA-/AA- 2025 +1404/30/2015 200,000,000 Adventist Health A1/A+/NR 2045 +2255/13/2015 122,319,000 Charity Health Baa1/BBB/NR 2025, 2035 +3255/18/2015 250,000,000 Southern Baptist Hospital of Florida NR/AA-/NR 2045 +1855/25/2015 191,830,000 HealthPartners A2/A/NR 2016-2027 +2056/4/2015 201,728,000 Community Hospitals of Indiana A2/A/NR 2025, 2045 +190, +235

6/17/2015 252,820,000 Ochsner Clinic Foundation Baa1/NR/BBB+ 2045 +275

31

Recent Healthcare Security Packages

Sale DatePar

(000s)Ratings (M/S/F)

Underlying Ratings (M/S/F)

StateSpread to

MMDFinal

Maturity

Revenue/ Rec

PledgeMortgage DSRF

Liquidity Covenant

DaysDebt to Cap Covenant

%Rate

Covenant

Days Cash on Hand

May 20, 2015 $ 141,495 A2/A/nr A2/A/nr NV 127 2041 Yes Yes No No 0 No 0 1.10x 336 (2/28/15)

May 21, 2015 $ 250,000 nr/AA-/nr nr/AA-/nr FL taxable 2045 No No No No 0 No 0 1.15x 359 (3/31/15)

May 28, 2015 $ 453,470 Baa2/nr/BBB

Baa2/nr/BBB PA 154 2046 Yes Yes No No 0 No 0 1.10x 100 (3/31/15)

May 28, 2015 $ 498,225 A2/A/nr A2/A/nr MN 113 2035 Yes No No No 0 No 0 1.10x 165 (12/31/14)

Jun 3, 2015 $ 281,470 Aa2/AA+/AA Aa2/AA+/AA OH 108 2045 Yes No No No 0 No 0 1.00x 486 (3/31/15)

Jun 3, 2015 $ 120,260 Baa1/A-/nr Baa1/A-/nr CA 100 2046 Yes Yes No No 0 No 0 1.10x 103 (2/28/15)

Jun 4, 2015 $ 503,640 A3/A-/A A3/A-/A NY 101 2043 Yes Yes No Yes 30 consulta

nt

No 0 1.25x 108 (3/31/15)

Jun 4, 2015 $ 223,230 nr/A-/A- nr/A-/A- NE 109 2048 Yes No No No 0 No 0 1.10x 185 (3/31/15)

Jun 4, 2015 $ 201,728 A2/A/nr A2/A/nr IN taxable 2045 Yes No No No 0 No 0 1.10x 178 (12/31/14)

32

Rating Agency Perspective

Stable Outlooks for the Health Care Space

33

S&P:• “…operational improvements driven by…Medicaid expansion, including a stronger-than-

expected boost in volumes and payor mix reflecting clear declines in the number of uninsured people, management initiatives that are delivering on their early promises to improve performance, increasing balance sheet flexibility with generally higher unrestricted reserves, and continued operational benefits from merger and acquisition activity.”

• “Although we expect broad industry pressures to continue and even grow over time, most notably the movement toward a value versus the current fee for service orientation, we believe ratings for the vast majority of providers will remain the same over the remainder of 2015 and 2016, and upgrades and downgrades will remain balanced.”

Moody’s:• “Most not-for-profit hospitals and health systems benefited from revenue growth, strong

investment returns and significant gains in the number of individuals with insurance despite growing exposure to government insurance programs. US not-for-profit and public healthcare medians reveal improved profitability margins in 2014 while balance sheet measures continued their favorable trajectory. We expect these trends to continue during 2015 and into 2016, supporting our stable outlook on the industry.”

Fitch:• “…growing clarity on the fate of the Patient Protection and Affordable Care Act

(PPACA)has since provided more stable expectations as hospital issuers execute strategic plans. While continued challenges to the PPACA are likely, many of the key provisions that have been the impetus of hospitals’ financial improvements are increasingly likely to stay. Fitch believes the positive momentum will continue through 2015 then taper in the following 12 months–24 months as reimbursement pressures and supplemental funding cuts begin to accelerate.

34

Health Care Financial Medians Show Renewed Strength

Liquidity vs Capital Expenditures

Coverage

Source: “U.S. Not-For-Profit Health Care Sector Outlook Revised to Stable From Negative, Though Uncertainties Persist”, Standard & Poor’s, September 9, 2015

Profitability

Debt to Capitalization

Note: Medians are for “A” category stand-alone hospitals

Drivers of the Improved Outlook

35

Moody’s cited the following:

Median annual revenue growth rate surpassed median expense growth rate by a wide margin.

• Median annual revenue growth was 5.2% while median expense growth was 4.6% in 2014, reversing the prior two-year trend of expense growth outpacing revenues.

Medicaid exposure grew markedly accompanied by continued growth in Medicare exposure, while self-pay declined and risk-based payment arrangements remain marginal.

• Median growth of government revenue streams is increasing as uninsured rate declines and transition to risk based payment methodologies is gradual, though margins will remain pressured.

Source: Strong Business Conditions Bolster Profitability and Growth, Moderating Fundamental Sector Risks, Moody’s, September 10, 2015


36

Profitability rebounds to 2012 levels; operating cash-flow growth surges.

• Operating cash flow growth is at a multi-year high while margins return to levels seen in 2011 and 2012 after weakening in 2013.

Sector-wide margin recovery and solid investment returns, accompanied by slowed capital spend, contributed to strengthened balance sheet measures.

• Median unrestricted cash and investments grew 10% in 2014 while median debt declined, 43% of the portfolio spent less than annual depreciation expense on capital.



37

In 2014, median outpatient revenue surpassed inpatient revenue for the first time

• Surprising that profitability increased in the face of higher outpatient revenue


S&P’s Revised Criteria Has Delivered Some Surprise Rating ChangesSome recent credit rating actions include upgrades and downgrades based on implementation of S&P’s revised criteria for stand-alone hospitals As of June 30, 2015: 45 upgrades compared with 32

downgrades and 215 ratings affirmations for the entire health care sector including stand-alone providers, health systems, senior living, and human service providers.

After adjusting for the revised criteria, year to date upgrades outnumber downgrades

38Source: “U.S. Not-For-Profit Health Care Sector Outlook Revised to Stable From Negative, Though Uncertainties Persist”, Standard & Poor’s, September 9, 2015

But There Are Challenges Ahead

39

• The credit gap--specifically between large providers with specific market competencies and differentiators as compared with smaller providers unable to leverage their more limited size and scale;

• Expectation of longer term revenue pressures--particularly as seen in operational forecasts that call for conservative margins and the likely reemergence of volume pressures as the recent improvement in volume and payor mix is baselined;

• Potential for additional capital expenditures and associated debt increases after years of more modest spending, which could limit future financial flexibility and adversely affect debt related metrics; and

• Continued uncertainty in the sector on multiple fronts, including the imprecise nature of the pace of change to a value model, the role of price and cost consciousness among consumers, potential volatility in non-operating income levels in light of recent significant fluctuations in the equities markets, and the unknown effects of political changes on state and federal health care policy due to future elections.

Source: “U.S. Not-For-Profit Health Care Sector Outlook Revised to Stable From Negative, Though Uncertainties Persist”, Standard & Poor’s, September 9, 2015

40

Planning Has Been Transformed By Health Care Reform Creative Strategic Partnerships:How can you leverage relationships to optimize the delivery of care or expand services in the face of population health management, wellness initiatives and the onslaught of big data?

Strategic Planning:How will you maintain or increase your market share in your service area? How much will it cost? How will competitors react? How do the physicians fit into your long-term strategy?

Financial Planning:Can you afford your strategic plan within acceptable credit risk parameters?

Capital Allocation:How much should you spend? Are you focused on the right strategies?

Capital Structure:What is the right amount, mix, structure, and cost of debt? How risky is the capital structure? Is there concentration risk?

Budgets Planning:Has the organization been able to meet its budgeted goals? Is your budget tied to your strategic financial plan? Does the Board hold you accountable for results? What will you do if the organization falls short of its budgeted goals?

Exit Strategies:Are there services that you can easily exit? Which facilities can you sell? How will you make that determination? Is there a market for them?

41

Rating Agency Strategy

Build a relationship with your rating analysts:

Improved communication and honest disclosure is essential

Be proactive: Don’t wait for them to call you

Demonstrate consistent performance, management accountability and balance sheet management

42

Questions?

Nessy Shems

Piper Jaffray & Co.

312.267.5021

[email protected]

Disclosure StatementsPiper Jaffray is providing the information contained herein for discussion purposes only in anticipation of being engaged to serve as underwriter or placement agent on a future transaction and not as a financial advisor or municipal advisor. In providing the information contained herein, Piper Jaffray is not recommending an action to you and the information provided herein is not intended to be and should not be construed as a “recommendation” or “advice” within the meaning of Section 15B of the Securities Exchange Act of 1934. Piper Jaffray is not acting as an advisor to you and does not owe a fiduciary duty pursuant to Section 15B of the Exchange Act or under any state law to you with respect to the information and material contained in this communication. As an underwriter or placement agent, Piper Jaffray’s primary role is to purchase or arrange for the placement of securities with a view to distribution in an arm’s-length commercial transaction, is acting for its own interests and has financial and other interests that differ from your interests. You should discuss any information and material contained in this communication with any and all internal or external advisors and experts that you deem appropriate before acting on this information or material.

The information contained herein may include hypothetical interest rates or interest rate savings for a potential refunding. Interest rates used herein take into consideration conditions in today’s market and other factual information such as credit rating, geographic location and market sector. Interest rates described herein should not be viewed as rates that Piper Jaffray expects to achieve for you should we be selected to act as your underwriter or placement agent. Information about interest rates and terms for SLGs is based on current publically available information and treasury or agency rates for open-market escrows are based on current market interest rates for these types of credits and should not be seen as costs or rates that Piper Jaffray could achieve for you should we be selected to act as your underwriter or placement agent. More particularized information and analysis may be provided after you have engaged Piper Jaffray as an underwriter or placement agent or under certain other exceptions as describe in the Section 15B of the Exchange Act.

43

Documents

Since 1895. Member SIPC and NYSE. Capital Markets Conditions and the Implication to Borrowers Presented to: Wisconsin HFMA 2015 Fall Institute September