How R.I. Issuer Backed Nonprofits for 50 Years

rihebcdonovan.jpg
bb082916trend.jpg

Fifty years ago, the one-person Rhode Island Health and Educational Building Corp. issued a $1.6 million bond on behalf of Barrington College, a biblical school since closed.

Since then, the conduit issuer has handled roughly $7.4 billion in debt and now oversees $3.1 billion in active financing.

"Even during challenging times, when financing options are limited, RIHEBC is committed to supporting our state's health and educational institutions," said Robert Donovan, the agency's executive director since 1993.

Rhode Island's General Assembly created the corporation in 1966. Its first financing was for a physical education building and other campus renovations at Barrington. Two years later the corporation began to assist nonprofit health associations, cooperative hospital service organizations and a broad range of nonprofit healthcare and educational providers.

In 2003, its statewide role expanded when lawmakers made it the designated issuer of bonds for school projects by cities and towns eligible for state aid. "That provided some economies of scale," said Donovan, whose current staff of five works in downtown Providence. "We were able to reduce costs."

Improving Rhode Island's infrastructure has been a cornerstone of Gov. Gina Raimondo's program since her administration took office in January 2015. "The governor has talked about infrastructure needs and it's not just roads and bridges. It's school buildings as well," said Donovan.

The corporation is administering the capital fund of the new Rhode Island Department of Education School Building Authority, which began with the passage of the fiscal 2016 budget. Lawmakers appropriated $20 million to that fund for grants and loans to communities for school building projects.

Barrington College, in Barrington, ceased operations when Gordon College of Wenham, Mass., acquired it in 1985. The Building Corp.'s second issuance, for Brown University, had a more lasting impact, as the Ivy League institution used the proceeds for administrative offices, infrastructure improvements and dormitories.

The agency has issued nearly $814 million overall for Brown through 26 transactions.

"They are such an integral institution, not just in the educational community, because of their name," Donovan said.

Brown's most noteworthy project of late was the $35 million conversion of Hunter Lab at 85 Waterman St. in Providence to an environmental sciences center.

RIHEBC has also issued $365 million on behalf of colleges under the Rhode Island Board of Governors for Higher Education, since renamed Rhode Island Council on Postsecondary Education. Those schools are the University of Rhode Island, Community College of Rhode Island and Rhode Island College. In addition, the agency has obtained nearly $200 million of funding for Rhode Island School of Design, $187 million for Bryant University and $183 million for Providence College, among other schools.

Tax-exempt bond financing is the corporation's workhorse. Financings have ranged from $1.2 million for a nursing home to $214 million for a hospital network.

The agency reported $13.4 million in debt-service savings from its $86.4 million negotiated sale of tax-exempt bonds on July 20 under its "pooled" public school revenue financing program.

It used the transaction to refund bonds issued in 2006, 2007, and 2008 for school construction projects in the Cranston, Cumberland, North Smithfield, Tiverton, Exeter-West Greenwich, Foster-Glocester and Bristol-Warren school districts.

"The ability of the public school revenue financing program to not only issue the initial bonds but to also combine issues when market conditions are most favorable to produce significant savings, provides benefits to both the state and municipalities," said Donovan, who estimates that the savings will reduce debt service municipalities pay by $1 million per year on average.

Moody's Investors Service assigned an Aa3 rating, saying it "primarily reflects the credit quality of the pool participants."

The programmatic rating, said Donovan, generally helps communities reduce borrowing costs through a pooled rating. "Some of our communities are in the triple-B category," he said. "When we issue bonds, there are savings at that level because of the programmatic rating."

Education and health by far is the largest employment sector in Rhode Island, accounting for 22% of the state's employment. According to Moody's Analytics, the concentration of colleges and universities, an established education and health care presence are strengths for an otherwise struggling state, as is a biotech buildout.

According to a study by data provider IHS Economics, the corporation issued $2.3 billion in financing for construction projects focused on health care and educational institutions from 2006 to 2015. These projects, said IHS, annually supported roughly 1,100 jobs directly and 2,335 including indirect and induced effects, on average for that period.

"In addition to the economic gains attributed to these expenditures, the projects financed through RIHEBC also created long-term economic value through the education, health-care and other nonprofit institutions it supports," IHS' James Diffley and Karl Kuykendall wrote.

Projects the corporation finances include higher education classrooms, dormitories and other facilities; kindergarten through 12th grade public and charter school facilities and projects; general acute-care, critical access and children's hospitals; general medical and surgical facilities; senior and assisted living and nursing homes; behavioral health-care centers; and community providers.

Health-care and long-term care projects included a $45 million bond in 1984 for Women & Infants Hospital of Rhode Island to build a relocated facility on Dudley Street in Providence. In 2008, the agency's $38 million tax-exempt offering helped build a five-story neonatal intensive care pavilion in Providence. It is one of the nation's largest for high-risk pregnant women.

"For more than 30 years, we have been fortunate to be able to rely on the support of RIHEBC," said Mark Marcantano, the hospital's president and chief operating officer.

In 2011, a $42 million tax-exempt sale backstopped a 138,000-square foot Tockwotten senior living facility along the East Providence waterfront, which houses 150 residents.

Corporation bonds have generated more than $30 million to health centers across the state for equipment and technology updates. Its first such loan in 1999 financed computer technology that enabled health centers to unify their billing systems. It also provided $12.1 million in 2010 to build a new health facility in Providence.

Issuing debt on behalf of community centers is especially satisfying, "even though they're smaller," said Donovan. "That's got to be one of the highlights. We started with direct loans and then we were bringing them to the tax-exempt bond market. Clearly they're the most challenged, given the population they serve."

Noteworthy education projects include $2.1 million in 1997 to construct a classroom wing and gymnasium at Bishop Hendricken High School in Warwick, Rhode Island's only remaining all-boys Catholic high school. The school had launched a "Hendricken 2020" plan and – facing high interest rates from traditional banks – inquired whether a Catholic high school would be eligible for bond financing.

The funding led to additional financing opportunities, such as $6.1 million eight years later to construct an arts-and-technology wing, science and math labs, music rooms and a theater.

"They've been a true partner," said the school's chief financial officer, Paul Danesi.

The corporation's initial work with Bishop Henricken created a model for other Rhode Island Catholic schools, who collaborated on a $23 million funding pool. They are The Prout, Monsignor Matthew F. Clarke, Mercymount Country Day and Saint Philomena schools.

For reprint and licensing requests for this article, click here.
Healthcare industry Higher education bonds Rhode Island
MORE FROM BOND BUYER