Case Study

Dana-Farber Cancer Institute

PFM has provided a variety of services to the Dana Farber Cancer Institute (DFCI) over the past several years. Mostly recent PFM advised DFCI on the issuance of $150 million of auction rate securities to fund the construction of a campus expansion and facility replacement. The bonds were issued in two series, each insured by a different AAA rated insurer. The plan of finance also included a competitively bid variable-to-fixed rate swap. PFM advised DFCI on the structuring and bidding of that swap. The use of two series permitted DCFI to maximize its permissible arbitrage earnings in the construction fund. In addition PFM assisted DFCI in the reinvestment of the bond proceeds.

Prior to that PFM worked with DCFI to finance several research buildings. DCFI issued five series of variable rate bonds in the 1980s, which were backed by letters of credit. We converted three of the series to fixed rate with the letter of credit and then converted the remaining two to fixed rate using the new A+/A1 ratings of DCFI. A second research building was financed with the $22.9 million issue of 1992, which was insured by FGIC, and in 1995 a $94.2 million research building was financed using the DCFI A+/A1 credit ratings. A portion of the 1995 issue was taxable because of the need to maintain the tax-exempt status of the majority of the issue from a sponsored research perspective. DCFI had entered into a $20 million annual contract with a private pharmaceutical company and needed to make sure the percentage of sponsored research would not cause the ratio of taxable to tax-exempt debt to be questioned over the 20 year life of the bonds.

PFM also crafted the only operating lease recycling pool ever issued. This pool program initially issued in the amount of $30million in 1993 was primarily for the use of DCFI. It was structured to allow DCFI to finance research equipment as operating leases to enable the organization to expense the financing cost. In 1993, hospital based research organizations required a waiver from the federal government to permit interest expense to be included in indirect cost reimbursement. This particular waiver was difficult to obtain at that time and thus the operating lease strategy allowed DFCI to be reimbursed for financing costs.

Currently, we are in the process of refinancing DFCI's 1993 bonds with a synthetic fixed rate issue created through the issuance of weekly auction rate bonds and an enhanced LIBOR swap.