One of the best ways for determining whether HCNA can be
of assistance to your organization is to review how we have
assisted other clients. Here are summaries of some of our
financial advisory engagements in recent years.
Situation: Although it had $4 million in reserves
under its existing bond and FHA mortgage documents, the
hospital was short on working capital. It also had high
interest rate debt.
HCNA Recommendation: We implemented a two step refinancing
strategy for the hospital. The first step was a taxable
refinancing of the existing tax-exempt bonds. This released
the reserves in the bond resolution and reduced the interest
rate by 75 basis points. The second step was an unrated
tax-exempt refinancing of the taxable loan. This refinancing
released the reserves under the FHA mortgage and reduced
the interest rate by another 125 basis points.
Situation: The hospital had a restricted reserve
equal to 60% of its outstanding tax-exempt bonds. The hospital
wanted easier access to these reserves. It also needed cash
for physician integration activities that might not qualify
for tax-exempt bond financing.
HCNA Recommendation: We recommended that the hospital
issue taxable variable rate debt, and obtain protection
from interest rate increases through a swap or a cap. This
released the reserves and enabled the hospital to have maximum
flexibility with its funds during the next few years with
the option to refinance on a tax-exempt basis at a later
date. The hospital issued taxable debt, part fixed rate
and part variable rate.
Situation: The hospital had received CON approval
to convert a nursing unit to skilled nursing beds at a cost
of approximately $2.5 million.
HCNA Recommendation: We recommended that instead
of borrowing the construction funds, which would prove difficult
because of the hospital's outstanding FHA insured mortgage,
the hospital use funds in an existing reserve required by
FHA. We assisted the hospital in developing its presentation
to FHA and in obtaining FHA's approval to release the funds
for that purpose.
Situation: The hospital had bonds secured by a large
FHA mortgage. The bonds had already been partially refinanced,
but some high interest rate maturities remained. In addition,
the financing structure required the bonds to be retired
well before the maturity of the mortgage loan.
HCNA Recommendation: We devised a financing strategy
to take advantage of low interest rates using credit enhancement
provided by a bond insurer. The strategy also captured the
present value of the future forgiveness of the mortgage
balance without increasing the mortgage amount or the interest
rate. The refinancing based on this combined strategy "released"
$40 million in cash. We assisted the hospital in obtaining
the approval of the refinancing from the Department of Health,
the Dormitory Authority, FHA, HHS, and a bond insurer.
Situation: This system is in the forefront of managing
care in its region and needed a flexible set of financing
documents to enable it to react quickly to opportunities
in its market place.
HCNA Recommendation: We recommended that the system
refinance its outstanding tax-exempt debt through the local
IDA using a Master Trust Indenture. This provided considerable
flexibility for a variety of financing and corporate decisions,
while not requiring a gross receipts pledge or a mortgage.
The refinancing also resulted in substantial debt service
Situation: This inner city community health center
had been attempting to secure financing for a new facility
for more than 5 years, but had been unable to do so. As
demand increased the situation was becoming critical because
of a severe space shortage in its existing facility.
HCNA Recommendation: We recommended that the loan
be restructured to reduce its size and that a detailed feasibility
projection be prepared. HCNA helped to identify a high yield
tax-exempt mutual fund that was impressed with the need
for the Center and its efficient operations, and was willing
to purchase the bonds . The financing was closed two months
after the Center accepted the financing proposal.
Situation: This community-based teaching hospital
had embarked on a complete restructuring of its information
technology operations. However, the leasing company that
was to provide the financing for the new equipment backed
out of the transaction after the equipment had been ordered.
HCNA Recommendation: We helped locate a non-traditional
source of tax-exempt leasing and closed a tax-exempt lease
quickly. The implementation of the new information technology
system was not disrupted.
Situation: A financially distressed inner city hospital
owned a 900 car parking garage that was financed at a very
high interest rate and was draining the hospital of $500,000
HCNA Recommendation: Although the hospital was experiencing
substantial losses from its operations, we were still able
to restructure and refinance the tax-exempt debt. As a result,
the parking garage is no longer a financial drain on the
Situation: To address a severe parking shortage,
an inner city hospital planned a new parking garage. Other
development plans at the hospital were dependent on relieving
the parking congestion.
HCNA Recommendation: We worked with the construction
team to expedite the financing of the parking garage. As
a result of our ongoing coordination with the construction
team, we were able to finance the parking garage four months
earlier than originally projected.
Situation: The system had refinanced a substantial
portion of its outstanding bonds using municipal bond insurance,
but still had restrictive covenants from the portion of
the bonds not refunded. Additional bond insurance was unavailable.
HCNA Recommendation: We recommended that the system
refinance its outstanding debt through the local IDA using
unrated bonds on a parity with the existing bonds. Not only
did the refinancing eliminate the restrictive covenants,
but it also produced $7 million in immediate cash flow savings
and enabled the system to fund an under-funded bond reserve.
Situation: A new for-profit 280 bed skilled nursing
facility had received Certificate of Need and all local
approvals to commence construction. It was unable to use
the FHA mortgage insurance program because of substantial
offsite costs and had been unsuccessful in obtaining an
alternative funding source.
HCNA Recommendation: We structured loans from a
commercial bank and a mezzanine lender that enabled the
project to obtain construction and permanent financing for
90% of the Certificate of Need approved Project Costs, meet
the financing contingency in its CON approval and commence
Situation: A suburban community hospital was in
technical default on a bank loan and needed to refinance
that loan and obtain additional capital for badly needed
renovations. An interested bond investor had been located
but negotiations were stalled.
HCNA Recommendation: HCNA devised a strategy of
high level meetings, a presentation explaining the cause
of and corrective actions taken for the hospital's past
financial problems, and its support from the health system
of which it was a member. As a result of the meetings and
presentations the hospital and the health system made a
financing proposal to the investor which was accepted.
Situation: The parking garage of a major teaching
hospital required substantial renovation. The hospital wished
to minimize debt service costs associated with the renovation
in order to limit the increase in parking fees, especially
because many employees used the parking garage daily.
HCNA Recommendation: HCNA devised a plan of finance
which enabled the hospital to obtain municipal bond insurance
and finance the renovations off-balance sheet. By using
bond insurance to keep interest rates low there was a minimal
increase in parking fees for employees. In addition the
hospital's debt capacity was not impacted.
Situation: A new 360 bed skilled nursing facility
funded its construction through bonds secured by an FHA
insured mortgage loan. Six years after the construction
was completed it had still been unable to complete final
endorsement. As a result, the facility had a high interest
rate, large cost disallowances and was unable to obtain
release of substantial funds.
HCNA Recommendation: HCNA assembled a team of legal
and financial experts to complete the final endorsement
process. We also recommended that the outstanding bonds
be refinanced. Upon completion of both final endorsement
and the refinancing, the full mortgage amount was recognized
by FHA, the interest rate on the mortgage decreased from
9% to 4.65% and $5.8 million in reserves was released to