Presentation to

April 2, 2014

by Nemzoff & Company, LLC

Jefferson Parish Council

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Presentation Outline Hospital Profiles Bidder Profiles Credit Comparison Summary of Bids Credit Analysis Proposed Selection Criteria Next Steps Questions and Answers

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Hospital Profiles

East Jefferson2011 2012 2013

Operating Revenue $360 $366 $367EBDIT $37 $28 $18

EBDIT Margin 10% 8% 5%Cash $160 $133 $129Debt $172 $166 $161

Rating NA NA Ba1

Dollars in Millions

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Hospital Profiles

West Jefferson2011 2012 2013

Operating Revenue $251 $254 $269EBDIT $26 $26 $27

EBDIT Margin 10% 10% 10%Cash $100 $102 $99Debt $145 $143 $144

Rating NA NA BBB

Dollars in Millions

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Hospital Profiles

East & West Jefferson - Combined2011 2012 2013

Operating Revenue $611 $620 $636EBDIT $63 $54 $45

EBDIT Margin 10% 9% 7%Cash $259 $235 $229Debt $317 $309 $305

Rating NA NA NA

Dollars in Millions

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Hospital ProfilesTransaction Cash Shortfall

Current as of

12/31/13Bonds

AssumedBonds

Paid offOperating Revenue $636 $636 $636

Cash $229 $0 $0

EBDIT $45 $45 $45

Principal ($8.4) ($8.4) $0

Interest ($17.6) ($17.6) $0

Cash Flow before Capital Requirements $19 $19 $45

Capital Commitment ($37) ($45) ($45)

Annual Cash Flow Surplus (Deficit) ($18) ($26) $0

Dollars in Millions

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Bidder Profile

Children’s Hospital2011 2012 2013 2014

Operating Revenue $223 $252 $407 NA

EBDIT $18 $45 $195* NAEBDIT Margin 8% 18% 48% NA

Cash $665 $708 NA NADebt $0 $0 NA NA

Rating NA NA AA NA

Dollars in Millions

*Medicaid Supplemental Payment - $204MM

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Bidder Profile

Touro Infirmary2011 2012 2013 2014

Operating Revenue $249 $306 $349 NA

EBDIT $20 $33 $96* NAEBDIT Margin 8% 11% 29% NA

Cash $40 $85 NA NADebt $75 $73 NA NA

Rating NA NA BBB NA

Dollars in Millions

*Medicaid Supplemental Payment - $80MM

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Bidder Profile

Interim LSU Hospital – 6 month data2011 2012 2013 2014

Operating Revenue NA NA $176 NA

EBDIT NA NA ($31) NAEBDIT Margin NA NA (18%) NA

Cash NA NA NA NADebt NA NA NA NA

Rating NA NA NA NA

Dollars in Millions

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Bidder Profile

LCMC - Combined2011 2012 2013 2014

Operating Revenue $464 $524 $932 $940

EBDIT $38 $781 $2612 $26EBDIT Margin 8% 15% 28% 3%

Cash $705 $793 $1,135 $1,061Debt $75 $73 $343 $322

Rating NA NA NA NA

Dollars in Millions

2Medicaid Supplemental Payment - $284MM

1Medicaid UPL $66MM

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Bidder ProfileLCMC - Accounting 101Example 1

1. Community hospital is making $5MM in profits this year and the last day of the year, they borrow $10MM and they do not spend it.

2. On their year end financials, They show a $5MM profit on their Income Statement.

3. Their debt which is a liability goes up by $10MM and their cash goes up $10MM. That is why they call it a Balance Sheet, because anything that happens on the liability side impacts the assets side dollar for dollar.

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Bidder ProfileLCMC - Accounting 101Example 2

1. Community hospital is making $5MM in profits this year and on the last day of the year they buy an MRI for $4MM.

2. On their year-end financials, they show a $5MM profit, because capital expenditures are not an expense that appears on their Income Statement.

3. On their Balance Sheet, their cash goes down by $4MM and their property plant and equipment goes up by $4MM. Their total assets do not change.

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Bidder ProfileLCMC - Accounting 101What happened at LCMC in 2013?

1. They borrowed $250MM. So their debt went up by $250MM and their cash went up $250MM.

2. In addition to that, they wrote the state a check for $258MM in order to prepay the lease on the University transaction. They put that expense on their Balance Sheet and they called it "other assets“. 

3. The state of Louisiana increased their Supplemental Medicaid payments by $260MM, virtually the same number. They put that on their Income Statement as revenue.

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Bidder ProfileLCMC - Accounting 101

What happened at LCMC in 2013?

4. The revenue went on their income statement, the expense went on their balance sheet and the money is gone. But if you only look at their income statement, it looks like they made a fortune.

5. Their forecast for EBDIT in 2014 is 3%.6. That means they have $27MM in cash flow before

they pay the debt service on $340MM bonds and before they pay for any capital.

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Bidder Profile

Ochsner Health System2011 2012 2013

(9 mo. data)

Operating Revenue $1,796 $1,842 $1,475EBDIT $115 $72 $102

EBDIT Margin 6% 4% 7%Cash $437 $367 $364Debt $666 $656 $634

Pension Liability $144 $155 $151Rating NA NA BBB+

Dollars in Millions

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Bidder Profile

HCA2011 2012 2013

Operating Revenue $29,682 $33,013 $34,182EBDIT $7,063 $6,371 $6,547

EBDIT Margin 24% 19% 19%Cash $373 $705 $414Debt $26,000 $27,000 $28,000

Rating NA NA Ba3

Dollars in Millions

Credit ComparisonTotal Revenue

AA

A

BBB

Junk

East

West

W & E

Children's

Touro

Interim

LCMC

Ochsner

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400

*

$2B

*Source: Standard and Poor’s 2012 Median

***

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Credit ComparisonEBDIT Margin

2013

AAA

BBBJunkEast

WestW&E

Children'sTouro

InterimLCMC

Ochsner

0% 4% 8% 12%LCMC entities adjusted for Medicaid Pass-through

1111

2222

1

Source: Standard and Poor’s 2012 Median2

-18%

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Credit ComparisonDays Cash on Hand

2013

AAA

BBBJunkEast

WestW&E

Children'sTouro

InterimLCMC

Ochsner

0 100 200 300 400 500 600 700

NANANA

*Source: Standard and Poor’s 2012 Median

****

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Summary of BidsWhat is Transaction Value?

Cash Delivered at Closing Property Taxes Paid Debt Assumed Pension Obligations Assumed Other Liabilities Assumed

Equals Transaction Value at ClosingPlus Capital Equals Total Transaction Value

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Summary of BidsTransaction Value – East Jefferson

Ochsner Health SystemBonds

AssumedBonds Paid Off

Cash Delivered at Closing $0 $167Assumption of Debt $167 $0

Debt Service Reserve Fund $0 $0Trustee Held Fund $0 $0

SUBTOTAL $167 $167Assumption of Pension $33 $33

Assumption of Other Liabilities $8 $8Transaction Value at Closing $208 $208

Plus PV of Capital over 15 yrs. $208 $208Total Transaction Value $416 $416

Dollars in Millions

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Summary of BidsNet Proceeds – East Jefferson

Ochsner Health SystemBonds

AssumedBonds

Paid OffCash at Closing $0 $167

Cash on Hand $186 $186Debt Service Reserve Fund $0 $12

Debt Paid Off $0 ($205) Net Proceeds $186 $160

Dollars in Millions

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Summary of Bids Transaction Value - Both Hospitals

LCMCBonds

AssumedBonds

Paid OffCash Delivered at Closing $223 $449

Assumption of Debt $305 $0Debt Service Reserve Fund ($23) $0

Trustee Held Funds ($87) $0Transaction Value at Closing $418 $449

Plus PV of Capital over 15 yrs. $490 $490Total Transaction Value $908 $939

Dollars in Millions

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Summary of Bids Net Proceeds - Both Hospitals

LCMCBonds

AssumedBonds Paid Off

Cash at Closing $223 $449Cash on Hand $229 $229

Other Liabilities ($10) ($10)Pension ($66) ($66)

Debt $0 $305Trustee Held Funds $0 $110

Defeasance Premium $0 $76 Net Proceeds $376 $331

Dollars in Millions

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Summary of Bids Transaction Value - West Jefferson

LCMCBonds

AssumedBonds

Paid OffCash Delivered at Closing $66 $225

Assumption of Debt $147 $0Trustee Held Funds ($38) $0

Other Liabilities $4 $0Pension $33 $0

Transaction Value at Closing $212 $225Plus PV of Capital over 15 yrs. $233 $233

Total Transaction Value $445 $458

Dollars in Millions

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Summary of BidsNet Proceeds - West Jefferson

LCMCBonds

AssumedBonds

Paid OffCash at Closing $66 $225

Cash on Hand $99 $99Other Liabilities $0 ($3)

Pension $0 ($34)Trustee Held Funds $0 $38

Debt $0 ($147)Defeasance Premium $0 ($25)

 Net Proceeds $165 $153

Dollars in Millions

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Summary of BidsTransaction Value - Both Hospitals

HCA Bonds Paid OffPrepaid Lease Payment $575

Community Fund $2Defeasance Fund $83

Net Working Capital Surplus $13Cash Delivered at Closing $673

Present Value of Property Taxes $194Transaction Value at Closing $867

Plus PV of Capital over 15 yrs. $490Total Transaction Value $1,357

Dollars in Millions

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Summary of BidsNet Proceeds - Both Hospitals

HCA Bonds Paid OffCash at Closing $673

Cash on Hand $229Bond Defeasance ($381)

Trustee Held Funds $110Pension ($66)

Other Liabilities ($10)Net Cash at Closing $555

PV of Property Taxes $194Net Proceeds on a PV Basis $749

Dollars in Millions

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Summary of BidsTransaction Value - Individual Hospitals

HCA Bonds Paid OffEast West

Cash Delivered at Closing $336.5 $336.5PV of Property Taxes $97 $97

Transaction Value at Closing $433.5 $433.5Plus PV of Capital over 15 yrs. $245 $245

Total Transaction Value $678.5 $678.5

Dollars in Millions

Summary of BidsNet Proceeds - Individual Hospitals

HCA Bonds Paid OffEast West

Cash at Closing $336.5 $336.5Cash on Hand $130 $99

Bond Defeasance ($209) ($172)Trustee Held Funds $72 $38

Pension ($32) ($34)Other Liabilities ($7) ($3)

Net Cash at Closing $290.5 $264.5PV of Property Taxes @ 5% $97 $97

Net Proceeds on a PV Basis $387.5 $361.530

Dollars in Millions

Summary of BidsTransaction Value/Net Proceeds Reconciliation – Both Hospitals

Bonds Paid OffBonds

Assumed

HCA LCMC LCMCTransaction Value

at Closing $867 $449 $418Plus Cash $229 $229 $229

Less Debt Paid ($381) ($381) $0Debt Assumed $0 $0 ($305)

Trustee Held Funds $110 $110 $110Pension ($66) ($66) ($66)

Other Liabilities ($10) ($10) ($10)Net Proceeds $749 $331 $376 31

Dollars in Millions

Summary of BidsTransaction Value/Net Proceeds Reconciliation – Individual Hospitals

Bonds Paid Off Bonds Assumed

HCA(East)

HCA(West)

LCMC(West)

Ochsner (East)

LCMC(West)

Ochsner(East)

Transaction Value at Closing $433.5 $433.5 $225 $208 $212 $208Plus Cash $130 $99 $99 $128 $99 $128

Less Debt Paid ($209) ($172) ($172) ($204) $0 $0

Debt Assumed $0 $0 $0 $0 ($147) ($167)Trustee Held Funds $72 $38 $38 $70 $38 $58

Pension ($33) ($32) ($33) ($34) ($33) ($33)Other Liabilities ($7) ($3) ($4) ($8) ($4) ($8)Net Proceeds $387.5 $361.5 $153 $160 $165 $186

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Dollars in Millions

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Summary of BidsCapital CommitmentComparison of Bids

Capital Commitment HCA LCMC Ochsner

First 10 years $450 $450 $450Years 11 to 15 Unknown $225 $225Years 16 to 30 Unknown Unknown $675

Dollars in Millions

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Ochsner Credit AnalysisOchsner

2013 Net Revenue $2,000(estimated)

EBDIT Margin 2012 4%EBDIT Margin 2013 7%

(based on 9 mos. Actual)

Long Term Debt LTD as a % of Revenue

$63432%

Unfunded Pension Liability $151Unfunded Pension as a % of Revenue 8%

Cash on Hand Before Transaction $364

Dollars in Millions

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Ochsner Credit Analysis Lease for East Jefferson

OchsnerTransaction Value $208

Present Value of Capital for 15 yrs. $208 Present Value of Transaction Cost,

First 15 yrs. Only $416

Dollars in Millions

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Ochsner Credit Analysis Lease for East Jefferson

Ochsner Cash Expenses

Days Cash on

HandOchsner as of 12/31/13 $364 $1,8651 71 days

Ochsner plus East Jeffersonas of 12/31/13 $364 $2,2251 60 days

Post Transaction East – Bonds Paid Off2 $156 $2,2251 26 days

Dollars in Millions

1Prorated based on 9 mos. data2Assumes payment of $208MM at closing

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LCMC Credit Analysis

LCMC2013 Net Revenue $940

Adjusted EBDIT Margin 2013 0%Projected EBDIT Margin 2014 3%

Long Term Debt as a % of Revenue 37%Cash on Hand Before Transaction $1.1Billion

Dollars in Millions

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LCMC Credit AnalysisLease for Both Hospitals

LCMCBonds

AssumedBonds

Paid OffTransaction Value $418 $449

Present Value of Capitalfor 15 yrs. $490 $490

Present Value of Transaction Cost, First

15 yrs. Only $908 $939

Dollars in Millions

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LCMC Credit Analysis Lease for West Jefferson

LCMCBonds

AssumedBonds

Paid OffTransaction Value $212 $225

Present Value of Capital for 15 yrs. $232 $232

PV of Transaction Cost, First 15 yrs. Only $448 $457

Dollars in Millions

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LCMC Credit Analysis Lease for Both Hospitals

LCMC Cash ExpensesDays Cash

on HandLCMC as of 12/31/13 $1,135 $674 614 days

LCMC plus East & West Jefferson as of 12/31/13 $1,135 $1,263 328 days

Post Transaction East & West Jefferson – Bonds Paid Off* $686 $1,263 198 days

Dollars in Millions

*Assumes payment of $449MM at closing.

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LCMC Credit Analysis Additional Consideration

Performance based payments assuming an increase in EBDIT above 8%. Value assigned by LCMC - $129MM.

Economic Impact of moving back-office functions. Value assigned by LCMC - $24.5MM per year.

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LCMC Credit Analysis Additional Consideration

Lease term 30 years plus three 15-year renewal – total term 75 years.

At the end of the lease any improvements made to the existing building revert back to the District. Anything they build off campus, LCMC keeps. Any major moveable equipment they purchase, LCMC keeps.

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Proposed Selection Criteria

The #1 Criteria for Selecting a Winning Bid is,

“What is best for the people of Jefferson Parish?”

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Proposed Selection Criteria

The #2 Criteria for Selecting a Winning Bid is,

“Who can we entrust our hospital to for the next

45 to 75 years?”

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Proposed Selection CriteriaReport Card

HCA LCMC OchsnerLoss of Control F F FCurrent Credit

Strength A B CManagement

Expertise - Finance A C CManagement

Expertise - Quality B B AGuaranty A B C

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Proposed Selection CriteriaReport Card

HCA LCMC OchsnerTransaction Value A C C

Anti-trust Risk A D DMission Compatibility C B B

For-Profit vs Not-for-Profit NA NA NA

GPA 3.125 2.125 2.0

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Proposed Selection CriteriaWhat is credit strength?

HCA LCMC Ochsner

Can they afford this?

BothHospitals Yes No NA

OneHospital Yes Maybe Maybe

What is their current credit strength?

Strong Average Marginal

What is their future credit strength, if they do this deal?

BothHospitals Strong Weak NA

OneHospital Strong Marginal Marginal

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Next Steps

Select Winning Bidder Retain Transaction Team Due Diligence Definitive Agreement Closing

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Next Steps

Both hospitals, management team, attorneys, financial advisors & board members all have a conflict of interest with respect to negotiating the transaction.

Management team members would negotiating with their future employers.

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Next Steps

Advisors and lawyers would be negotiating with their future clients.

The Board Members are currently the Board of Trustees of the Lessor. The day after closing, they will be the Board of Trustees of the Lessee, unless they all resign.

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Questions and Answers