IRHA Annual Meeting The Landscape of Hospital Finance – 2013 & Beyond: How Borrowers Will Access Capital August 2013. Agenda. State of the Capital Markets Accessing Capital – The Goals, Needs, or Opportunities Accessing Capital – The Process Traditional Sources of Capital
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The Landscape of Hospital Finance – 2013 & Beyond: How Borrowers Will Access Capital
FHA 242 Mortgages
Tax-Exempt Fixed Rate
BanksTraditional & Alternative Options Today
USDA Loan Programs
Very popular structure up to 2008
The financial crisis illuminated several risks
Crisis gave way to current supply/demand dynamic
Tax-Exempt bonds structured and privately placed (sold) to a bank
Term: Market and credit driven, typical 3-10 years Amortization: 20-30 years
Rates: Fixed or variable (“Index Floaters”), up for negotiation and specific to each bank
Tax-Exempt bonds issued to the market on provider’s own credit strength
Rated or Non-rated
Term: 25-35 years
Rates: Credit and market driven
A mortgage loan made by a private sector mortgage lender, insured by FHA / HUD
Term & Amortization: 25 years
Rates: Depending on if funded as taxable or through tax-exempt bond sale. Also dependent on % of new money vs. refinance.
Key Qualifiers – Traditional 242 Program
Just re-released 02/04/2013
Like 242, a mortgage loan made by a private sector mortgage lender, insured by FHA / HUD. However, 242f is a refinance directed program
Term & Amortization: 25 years
Rates: Approximately 3.00-3.25%
Key Qualifiers – 242f Program
USDA Community Facilities (“CF”) Program
USDA Business & Industry (“B&I”) Program
184-bed provider with financial ratios consistent with BB+ to BBB- peers (“threshold investment grade”)
Existing Structure = $27MM in LOC enhanced bonds with a swap
In advance of the expiration the hospital elected to go out to market for re-structuring alternatives (found out late in the process that the existing LOC bank did want to renew under any terms). They explored:
196-bed provider with financial ratios consistent with BBB+ peers
Existing Structure = LOC enhanced bonds with a swap
In advance of the expiration the hospital elected to go out to market for re-structuring alternatives driven by their stand alone strength and the supply / demand factors in the LOC market. They explored:
The capital markets have significantly improved since the financial crisis.
Most all debt structures contain the ability to access historically low interest rates for debt restructuring / funding new projects.
Organizations should assess their goals, needs, and opportunities before going to market for debt financing.
Most organizations should explore both traditional and alternative structures in tandem, arriving at the structure best suited for their organization.