COLUMBUS, Ohio (Jan. 27, 2010) – Lancaster Pollard has closed on a combination of Build America Bonds and federal mortgage insurance to finance the replacement of a rural Michigan hospital. The Baraga County Memorial Hospital transaction is only the third of its kind ever done, and one of very few that will ever happen: Build America Bonds expire after 2010, and less than a dozen HUD hospital loans are completed each year.

More than 70 percent of hospitals have stopped, postponed or scaled back planned or in-progress capital projects because of the credit crisis, according to an August 2009 American Hospital Association survey. Baraga and numerous peers continue to modernize, however, by taking advantage of financing options that were created in only the last two years – options that will expire at the end of 2010, before many hospitals realize they exist.

“Many hospital financing options fell off the table as bond insurers and banks retreated,” said Thomas R. Green, chief executive officer of Columbus, Ohio-based Lancaster Pollard, a national investment banking and mortgage banking firm specializing in health care finance. “These temporary options make it possible for hospitals to continue to modernize. But those that don’t take advantage in 2010 could be left in an unfriendly meantime if conventional financing options and the credit markets haven’t recovered more by the time these temporary options expire.”

This week Lancaster Pollard is releasing a new guide explaining and comparing hospital financing options for 2010. “Financing Options for Large Hospitals and Multi-Hospital Systems” explains what changes have been made to debt financing options for hospitals of all sizes, how both permanent and temporary financing options work, and which options must be acted on by the end of the year. The guide is being mailed this week to hospital executives nationwide. Topics include:

• Hospitals can supplant national banks that aren’t lending by combining local bank financing with Federal Home Loan Bank credit support, an option that expires after 2010. Hopedale Medical Complex in Illinois refinanced this way.
• Under the American Recovery and Reinvestment Act, public hospitals can issue Build America Bonds for new construction and receive reimbursement for 35% of their interest coupon cost for the life of the loan, but the bonds must be issued before December 31. Baraga County Memorial Hospital combined this option with federal mortgage insurance, and Girard Medical Center in Kansas combined it with bank-qualified bonds to renovate. Hospitals can issue up to $30 million as “bank-qualified” bonds to reduce their interest cost. After December, though, this limit reverts to the pre-ARRA limit of $10 million.
• Federal hospital mortgage insurance can be used to refinance hospitals as well as build or renovate them. Idaho’s North Canyon Medical Center is replacing its facility this way.

“Some hospitals just can’t wait out the market because it might mean losing leverage for physician recruitment, or losing patients who must go elsewhere because the older building of their community hospital cannot accommodate new technologies,” Green said. “Financing is available via these temporary options and also via conventional structures. Hospitals that cannot wait should not wait if they want access to the broadest spectrum of options.”

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