NEW YORK, April 5 /PRNewswire/ -- New York University Medical Center’s industry-leading Clinical Cancer Center in Mid-Manhattan was financed with a creative mix of healthcare financing options through KeyBank that can serve as a model for hospitals with liquidity concerns across the country.
Rather than relying on traditional financing through tax-exempt bonds, which was not possible at the time, NYU sought an alternative, cost-effective way to build the facility and get it financed.
“NYU Medical Center’s challenge, common for hospitals today, was addressed through a series of financing approaches that served it well,” said Angela Mago, national manager of Key’s Healthcare Finance group. “We implemented a successful model that other hospitals could also use to maintain liquidity, keep debt in check and still proceed with strategic expansions to serve patients and attract physicians.”
Key’s three-pronged approach included: 1) financing for a developer to build and initially own the facility, leasing it back to NYU Medical Center; 2) a $15 million term loan to NYU Medical Center for improvements such as carpeting, partitions and fixtures; and 3) a $73.6 million, multi-bank conduit financing arrangement using a synthetic lease so NYU Medical Center could purchase the facility from the developer six months after construction was completed. (Note: A commercial paper (CP) conduit is a funding source that issues commercial paper to banks and other parties interested in short-term investments. The conduit then lends the money to businesses. Loans through a conduit are generally less costly than direct loans through a bank, however CP conduits often require liquidity support or letters of credit from a bank or banks as “insurance” that the financing will be repaid.)
Three or four years from now, NYU Medical Center plans to apply for long-term, tax-exempt financing, the final phase of the project.
The 13-floor, 85,000 square foot NYU Clinical Cancer Center consolidates prevention, screening and genetic counseling, diagnosis, treatment, psychological counseling and radiation therapy in a single facility where all aspects of patient care are coordinated. It is the only National Cancer Institute-designated cancer center in New York City to offer radiation therapy in a freestanding outpatient facility. The patient-centered facility is considered state-of-the-art, attracting patients and physicians alike.
“This was a very exciting project to work on because it was so important to NYU Medical Center’s strategy and brings exceptional new resources to the city,” said Maryann Smith, senior vice president, Key’s Healthcare Group, “but it required extraordinary flexibility to meet the specific needs of NYU Medical Center.”
KeyBank’s involvement with the center began when it financed a developer who would construct and own the building and lease it back to NYU Medical Center. This enabled NYU Medical Center to get the facility built at a time when it could not incur the additional debt. This alternative financing method, in which a developer owns the asset, is increasingly used by hospitals that either want to maintain their liquidity or are at their debt limit but see new outbuildings as important to their strategic direction.
NYU Medical Center had an option to purchase the building and intended to exercise that option in January 2005, as it had figured out it could save $40 million over 20 years using the Key operating lease structure. After Key provided the $15 million term loan, NYU began working with Key to develop a way to purchase the building from the developer. Key brought in several other banks to participate in the financing.
“Key ran the syndication and that was critical,” said Richard Crater, CFO of NYU Medical Center’s Clinical Cancer Center. “Key had faith in us, and they were full partners with us in telling our story and getting the participation of other banks.”
As Joint Lead Arranger and Administrative Agent, KeyBank co-underwrote, with several lending partner banks, a long-term, off-balance-sheet financing solution. This $73.6 million financing allowed NYU to preserve financial flexibility, to control the property and to enjoy certain tax advantages. To facilitate a synthetic lease that would meet these important objectives, KeyBank’s loan was to a new special purpose entity called 34th Street Cancer Center Inc. created by NYU Medical Center. 34th Street Cancer Center Inc. is a not-for-profit, tax-exempt company whose function is to own the cancer center property and lease it to NYU at cost.
“Key’s participation has created immense value for us,” said Crater.
About the NYU Medical Center and the 34th Street Cancer Center: NYU Medical Center is one of the nation’s premier centers of excellence in health care and medical research. The new 34th Street Cancer Center, a 13-floor, 85,000-square-foot building offering such unique features as A Program in Women’s Cancers, a Wellness Boutique, a Screening and Diagnostic Center, an Oncology and Hematology Treatment Center, a Radiation Treatment Center, Psychosocial Support Services and a Cancer Education and Resource Center. Approximately 200 employees staff these programs.
About Key: Key’s Healthcare Finance division provides more than $1.6 billion in loan commitments to the healthcare industry through a broad range of products and services such as letters of credit, treasury management, leasing, derivatives, investment banking, permanent mortgages, private banking and investment management. It finances a range of healthcare real estate projects, including: multi-site hospital systems, community hospitals, medical office buildings, outpatient clinics, surgery centers and specialty hospitals. It is a division of KeyCorp’s Real Estate Capital line of business, the nation’s fifth-largest real estate capital provider.
Cleveland-based KeyCorp is one of the nation’s largest bank-based financial services companies, with assets of approximately $91 billion. Key companies provide investment management, retail and commercial banking, consumer finance, and investment banking products and services to individuals and companies throughout the United States and, for certain businesses, internationally. The company’s businesses deliver their products and services through KeyCenters and offices; a network of nearly 2,200 ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site, Key.com,(R) that provides account access and financial products 24 hours a day. KeyBanc Capital Markets is a trade name used by KeyCorp’s institutional banking division, providing securities products and services through its affiliate, McDonald Investments Inc., member NASD/NYSE/SIPC.
Note to Editors: For up-to-date company information, media contacts and facts and figures about Key lines of business, visit our Media Newsroom at Key.com/newsroom.
KEY MEDIA NEWSROOM: http://www.key.com/newsroom
Web site: http://www.key.com/newsroom
KeyBank
CONTACT: Dave Reavis of KeyBank, +1-216-689-1769, ordavid_reavis@keybank.com