Capital Project Financing, Loan Guarantees, Stimulus Funding, and Grant Opportunity Success Stories...
-
Upload
gannon-nowell -
Category
Documents
-
view
216 -
download
0
Transcript of Capital Project Financing, Loan Guarantees, Stimulus Funding, and Grant Opportunity Success Stories...
Capital Project Financing, Loan Guarantees, Stimulus Funding, and Grant Opportunity Success
Stories
March 19, 2010
LRGHealthcare – Laconia Campus
John Weaver/Seth Gabarro – DiGiorgio Associates Inc.Phil Chaput – LRGHealthcareJeffrey Sacks – Nixon Peabody LLPLarry Brown – DAIMike Kessler - DAI
Results of Economic Downturn
First recession in decades that has negatively affected healthcare financingBanks are in crisis-much more conservative with funding capital projectsHealthcare must remain competitiveLack of access to capital has challenged financing for facility, equipment and technology needs as well as meet obligations on existing debtHealthcare facilities are looking for alternative funding sourcesMoody’s has a negative outlook for the US not-for-profit hospital sectorThe weakened economy remains and recovery of not-for-profit hospitals will likely be delayed until after the broad economy healsMany hospitals have to update their infrastructure and making rooms sensitive to patient needs and advancing technology remains a priorityMore than 49% of hospitals are financing smaller construction projects from existing cash reserves
Capital Project Funding Sources - Overview
Conventional Sources of Capital
Alternative Funding Sources- HUD 242- USDA- New Market and Historic Tax Credits- Stimulus Grants
Grants and Fundraising- Robert Wood Johnson Foundation- Baldrige Award- Kresge Foundation
Specialty Funding Sources- Energy/Wood Fuels Grants
HUD Backed Financing
HUD-Housing & Urban Development
Established in 1965
FHA (Federal Housing Administration) a division of HUD
Not a funding agency is the largest government insurer of mortgages in the world
HUD insures loans resulting in lower interest rates
HUD insures up to 90% of the loan
Lenders bear minimal risk because HUD is insuring debt
Eligibility for HUD 242 Backed Financing
Facility must be an acute care hospital with no more than 50% of patient days attributable to the following services:
-chronic convalescence and rest, drug and alcoholic, epileptic, nervous and mental, mental deficiency and tuberculosis
-for Critical Access Hospitals this restriction does not applyIf state has a CON process, CON must be issued or pending Must grant FHA-insured lender a first mortgage on the entire hospital including property, plant, equipment, and receivables Must be willing to make monthly payments into a Mortgage Reserve Fund that will build to a balance equal to two years of debt service after ten yearsAverage operating margin for last 3 fiscal years to be greater than or equal to 0Average debt service coverage ratio greater than or equal to 1.25Design/Build projects must have mortgage amounts under $30 million
HUD 242 Loan Fees/Requirements
Loan to value may not exceed 90%
Maximum loan term 25 years
One-time fee of .8% of loan amount
Annual premium of .5% of remaining balance
Hospital must be able to provide first mortgage lien on the hospital’s real estate
When justified by circumstances, financial margins may be varied
Applying for HUD Backed Funding
Choose a lender-FHA maintains a list of lenders who are active in the hospital mortgage insurance program
Preliminary Review-FHA will perform a free preliminary review of the hospital and project to make sure that basic eligibility criteria are met
Pre-Application Meeting-If the hospital passes the preliminary review, the lender and representatives of the hospital are invited for a pre-application meeting
Submit Application-Please refer to the Applicant's Guide or the Applicant's Guide for Critical Access Hospitals
Underwriting-conducted by staff members of FHA
Commitment-If the hospital and project meet FHA's requirements and the FHA Commissioner approves the application, a commitment for mortgage insurance is issued
Closing-FHA counsel assists the mortgage lender, hospital, and their legal representatives to close the loan
HUD – Pre-Construction and Construction
Owner and CM should meet with HUD before the GMP process to have an understanding of the requirements. Some specifics of the HUD process outlined below:
- A preferred list of trade bidders is allowable, but they must meet the pre-established prequalification requirements
- All subcontractors who meet the prequalification requirements must be allowed to bid- Trade bids must be solicited and opened publicly- Award must go to the lowest bidder- Prevailing Rate Requirements (David Bacon Act) apply- HUD must approve, but is not a party to, the contract-Surety performance and payment bond required from CM
During construction, HUD staff members monitor and approve loan draws and perform monthly site visits
Final Endorsement-Once construction is completed and the final draw has been made, the final mortgage amount is established and amortization begins
Case Study: LRGHealthcare – Lakes Region General Hospital
LRGHealthcare – Lakes Region General Hospital, is an acute care, 137 bed facility located in Laconia, New Hampshire, and a long-standing client of DiGiorgio Associates Inc.
LRGH received capital loan and refinancing amounts equaling $142 million. This is a savings of $26 million during the life of the loan
LRGH submitted a $42 million CON for the first phase implementation of the $95 million Facility Master Plan we completed with the hospital in 2006. DAI then completed Construction Documents for implementation of Phase I of the Master Plan
DAI and MBI assisted LRGH with HUD financing deliverables
Case Study: LRGHealthcare – Lakes Region General Hospital
HUD Process from a Facilities Manager’s Perspective
Involvement of Facilities Department in Process
ALTA Surveys
Phase 1 Environmental Surveys
Benefits of the Affiliation Financially
Alternative Funding Sources – USDA
USDA offers direct cash funding of projects as well as a separate guaranteed loan backingEligible to towns with population under 20,000To qualify, non-profits must not have sufficient project fundsLow program entry cost with no application fee and a one-time 1%
processing feeDirect Community Facility loans currently at 4% fixed interest rate for up to 40 years.With a desire to move quickly, the local processing goal is 60-90 days after
receipt of a certified auditStaff engineer and field inspection are provided freeUSDA together with the Farm Credit Administration can issue a whole Rural Hospital Bond Package
www.usda.gov
Alternative Funding Sources – USDA
USDA Rural Development mission includes support for facility improvements at Hospitals, medical clinics, assisted living, medical and vocational rehabilitation centers, and community support services such as child or adult day care
Their objective is to provide credit enhancement to help finance community facilities in rural areas to serve much-needed medical care
The Community Facilities Program offers 3 financing options; Guaranteed Loan Program, Direct Loan Program and a Grant Program
USDA guarantees up to 90% of any loss against principal or interest
Eligible purposes of the funds include construction to improve or to enlarge essential community facilities
Reasonable professional fees associated with the project such as legal, engineering, architectural services, and feasibility studies may be included
USDA will consider Direct Lending in combination with Guaranteed Lending providing the community a low overall cost funding sourcewww.usda.gov
Alternative Funding Sources – USDA
For those projects receiving other assistance and have revenue sources (Sales tax, Property Tax, General Obligation and revenue Bonds) they receive a priority consideration for selection. Guaranteed Community Facilities loans are eligible to meet CRA (Community Reinvestment Act) requirements of Commercial Banks and Savings & Loans Institutions.
Loans may be sold on the secondary market through an assignment of guarantee, increasing the Lender of Record’s return on investment
There is no maximum loan limit; the amount is determined upon project feasibility, repayment ability, and reasonable project cost
Loan approval can occur in 30-60 days
The Community Facility program repayment period extends to a maximum of 40 years
Interest rates can differ for the guaranteed portion of the financing from the non-guaranteed financing component
www.usda.gov
Alternative Funding Sources – New Market Tax Credits
The purpose of the New Market Tax Credit is to encourage investment in poorer communities by giving the investor tax credits to improve its return on relatively riskier investments in low income communities.
The New Market Tax Credit was adopted in 2000, and is seen in Section 45D of the Internal Revenue Code.
This program is administered through the “Community Development Financial Institutions Fund”, a department of the U.S. Treasury.
Tax credits reduce a taxpayer’s tax liability “dollar for dollar”. Almost all investors are corporations. For example, if a tax payer owes $1 million in taxes and has $500,000 in tax credits, the tax payer only has to pay $500,000 in cash. The rest is paid with these credits.
Alternative Funding Sources – New Market Tax Credits
Tax credits are not actually bought and sold. Instead, the investor becomes a partner of a partnership or member of an LLC, and gets a “K-1” that tells it how much tax credit it has been allocated for the year.
When the economy is bad, tax payers don’t owe much tax, so there is less demand for tax credits.
Pricing for New Market Tax Credits has declined from about $.72 per credit dollar to about $.68 per credit dollar in the last 18 months.
New Market Tax Credits apply to any size building project.
Alternative Funding Sources – New Market Tax Credits
An investor capitalizes a “bank” (the Community Development Entity) that pays it back with both cash and tax credits. The combination is enough to give it the desired rate of return. To do this, the CDE has to be approved by the CDFI Fund, and be awarded an allocation of tax credits.
Alternative Funding Sources – Robert Wood Johnson Foundation
Grants to not-for-profits are available through specific calls for proposals
Unsolicited proposals are accepted in three program areas – Building Human Capital, Pioneer and Vulnerable Populations.
Building Human Capital- invests in training of health professionals.
- One goal is to reverse the childhood obesity epidemic by 2015
- Develop policies and programs to expand health coverage
Pioneer – supports innovators to explore cutting edge solutions of health and healthcare.
Vulnerable Populations – programs to transcend the social barriers that stand in the way to better health.
Public Health policy for Americans to have quality public health services and policies that protect, promote and preserve their health.
Equality commitment to improve the quality of health care for all Americans
www.rwjf.org
Alternative Funding Sources – The Baldridge Award
Healthcare sector is part of the nation’s highest recognition for Innovation and Performance Excellence
Award is announced in late November by the President of the United States.
National Institute of Standards and Technology (NIST) award promotes excellence in organizational performance
Criteria helps organizations improve their performance by focusing on three goals: delivering ever-improving value to customers and stakeholders, improving the organization’s overall effectiveness, and organizational and personal learning.
An independent board examines seven areas: leadership; strategic planning; customer focus; measurement, analysis and knowledge management; workforce focus; process management; and results.
Eligibility Certification deadline is April 6, 2010 ; 877/237-9064www.baldrige.nist.gov
Alternative Funding Sources – The Kresge FoundationA foundation that seeks to influence the quality of life for future generations to promote human progress.
Funding methods support facility capital, growth capital, operating support, and program support for our nation’s nonprofit infrastructure.
Awards planning grants and other forms of seed money for new nonprofits.
Makes available signature challenge grants for matching funds.
Health Program – improve access to healthcare for marginalized, particularly low-income and minority populations.
Four values apply: creating opportunity, working in underserved geography, promoting diversity, and strengthening community impact.
Environment Program – Address the challenges of global change focusing on reducing greenhouse-gas emissions, adoption of renewable energy technologies, and adaptive strategies for dealing with climate change.
Community Development – grants in geographically defined rural, urban, and aging suburban neighborhoods and its physical revitalization.
www.kresge.org
Locating Funding Sources – Energy/Wood Fuels Grants
DSIRE is a comprehensive source of information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency. www.dsireusa.org
THE CHP Partnership Funding Database tracks federal and state CHP and biomass financial incentives as well as regulations that remove unintended barriers to CHP or biomass project development such as standardized interconnection rules, net metering rules, or output-based regulations. www.epa.gov/CHP/funding/index.html
Fuel Cell Connection – (monthly email) focuses on federal and state-funded fuel cell research and development programs within the U.S. The Connection provides information on funding opportunities and contract awards, as well as legislation that will affect the fuel cell industry. www.usfcc.com
www.grants.gov is your source to find and apply for federal grants.
Specialty Funding Sources – Energy/Wood Fuels GrantsCase Study: Millinocket Regional Hospital
Millinocket Regional Hospital (MRH) in Millinocket, Maine needs to replace boiler.
MRH desires to utilize fuel source other than oil.
State of Maine Department of Conservation, Maine Forest Service request applications for grants to convert oil fired boiler plant to wood fuels.
Grant Highlights:
Open to all Maine public entities including schools, hospitals, state, county, local and tribal governments.
Preference given to Androscoggin, Aroostook, Franklin, Oxford, Penobscot, Piscataquis, Somerset and Washington Counties.
Preparation of grant
Results of initial grant application
Next steps
Open Discussion and Questions
Other Resources
For further information on any of the topics covered in this presentation,
please contact: Larry Brown or Seth
Gabarro(617) 723-7100