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Once at the hospital, she met with managers for several hours, discussed their strategic planning and nancial management, and walked the construction site for the new hospital, where she talked with the construction manager and sat in on one of his meetings.

She also analyzed the hospital’s market, taking into account popula- tion, income, and insurance data; competition from other health care providers; and the area’s employ- ment structure.

“I like looking at hospitals that operate in difcult environments, where you really have to get under the hood and gure out a story and put all the pieces of the puzzle together,” Ms. Lash says.

“Talking with managements is invaluable. From years of asking the same sorts of questions in different situations, you get an understanding of what the right answers should be and whether they have control over the issues they’re facing.

“Frankly, I’ve spoken with some management teams that completely had their heads in the sand as to what was going on around them, and you needed to be there to nd that out.”

Getting Involved

On a few occa- sions, probing by T. Rowe Price municipal credit analysts lead to even greater involve- ment with the bond issuer.

One such case involved a 15-year-old public charter school in Colorado, which issued bonds in 2007 to nance a move from a warehouse-type space to a brand new facility.

Among analyst Jonathan Chirunga’s specialties is examining bonds issued by charter schools. He says buying bonds of such schools is somewhat like investing in a start-up company, and so initially he was impressed by the school’s superior student achievement record relative to its larger school district. That track record, not surprisingly, had parents clamoring to enroll their children.

control to where they had a manage- able cost structure.

“Nothing was mandated by us. Instead we rolled up our sleeves and partnered with this school to bring about positive changes. There’s no doubt this was highly unusual, but it really was just part of my job. It was our duciary duty, and it was worth it for the school and for us as investors.”

All this took four visits to Colorado by Mr. Chirunga over


“We dig a little deepe , we do follow-up visits, and we collaborate with managements… to mitigate risk.”


But about nine months after the initial bond sale, Mr. Chirunga discovered that the school, which had been on sound nancial footing at the start, was not managing its construction nances well.

“They just said we want this for the school, we want that, and the price for the project kept going higher and higher,” he says.

There were other management challenges, as Mr. Chirunga found out on multiple visits to Colorado. At the same time, he says, the school’s positive fundamentals—its teaching and learning and its paren- tal support—had not deteriorated.

So Mr. Chirunga, who had proj- ect management experience before joining T. Rowe Price 10 years ago, took the very unusual step of work- ing hand in hand with the school to repair its nances, improve man- agement, and get its construction project back on track.

With the support of the project’s other bondholders, he says, “We requested that the school bring in a consultant to get the budget under

a year and a half—and countless phone calls. As a result, the school’s new building was nished in 2008 and, in the fall of that year, students moved in. Student achievement has remained high. The school’s enroll- ment has grown from about 560 students in 2008 to 875 students.

And its nancial condition has improved. Its bonds even have been rerated by Standard & Poor’s from noninvestment grade to investment grade and have been upgraded by the state of Colorado—resulting in principal gains that far exceeded the bonds’ original coupon rates.

Now the school is so successful, it is talking with Mr. Chirunga about how to nance construction of more classrooms.

“Initially, I didn’t expect to play such an involved role with this school,” he says. “There are a lot of other rms that invest in charter schools, but not everyone goes to the level of follow-up that we do. We dig a little deeper, we do follow-up visits, and we collaborate with managements in an effort to mitigate risk.”

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