FHA 242/223(f) - Refinance/Purchase of Hospitals

ELIGIBLE PROPERTIES:
Refinance or purchase of existing licensed acute care hospitals (including non-profit, profit, critical access and community-based). Up to 20% of the mortgage amount may be used for capital improvements, modernization or equipment.

ELIGIBILITY REQUIREMENTS:

• Over the last three full fiscal years, the facility’s aggregate operating margin must have been greater than or equal to $0 and the average DSCR must have been greater than or equal to 1.40 (use of projected FHA debt service permitted).
• At least 50% of patient days must be acute care (critical access hospitals [CAH] are exempted).
• First lien position on all real estate improvements. Exceptions for leased equipment.
• Hospital must demonstrate that its financial health depends upon refinancing its existing debt based on certain criteria and that it provides an essential service to the community in which it operates. For eligibility purposes, the hospital must meet three of the following seven criteria:
1. Total operating expenses will be decreased as a result of refinancing by at least 0.25%.
2. New interest rate will be at least 50 bps less than the current rate.
3. Current interest rate has increased at least 1% since January 1, 2008, or will very likely increase by that amount within a year of filing an application.
4. Total annual debt service in the most recent audited financials is at least 3.4% of total operating revenues.
5. Credit enhancement on current financing has been or will imminently be withdrawn or expired, or the provider has been or will be downgraded.
6. Existing financing has overly restrictive or onerous bond covenants.
7. Other circumstances exist that demonstrate that the hospital’s financial health depends upon refinancing its existing capital debt.

MAXIMUM LOAN:
Refinance:
The sum of the following, subject to a 90% LTV limitation:

1. Existing debt;
2. Legal, organization, title and recording expenses and FHA fees;
3. Repairs, renovation, and/or equipment totaling less than 20% of the
   mortgage amount; and
4. Other required professional or inspection fees.

Purchase:
The sum of the following, subject to a 90% LTV limitation:

1. Lesser of purchase price of the land and improvements or fair market value;
2. Legal, organization, title, and recording expenses and FHA fees; 
3. Repairs, renovation, and/or equipment totaling less than 20% of the
   mortgage amount; and
4. Other required professional fees.

INTEREST RATES:
Fixed rate determined by market rates at the time of rate lock.

AMORTIZATION:
Up to 25-year, fully amortizing permanent loan.

RECOURSE:
Non-recourse.

PREPAYMENT:
Typically closed for prepayment from 5-10 years based on market conditions and funding source. In the event of a 5-year prepayment lockout, prepayment is typically open at 105% in year 6, declining 1% per year. Variations are possible based on market conditions and borrower preferences.

ANNUAL MORTGAGE INSURANCE PREMIUM:
0.5% of the average principal balance (escrowed on a monthly basis). In
addition, 1% of the mortgage amount is payable at closing.

ESCROWS:
Monthly escrows for property insurance, real estate taxes, reserves for replacement, sinking fund (if applicable), mortgage reserve fund and mortgage insurance premiums (MIP).

COMMERCIAL SPACE:
Up to 10% of the gross floor area of the project. Commercial activity must be compatible with the use of the facility. Day care space is not considered commercial.

APPLICATION FEE:
A non-refundable fee of 0.3% of the requested mortgage amount is payable to FHA, plus estimated underwriting costs for feasibility/market study, appraisal (if applicable), environmental assessment and other loan processing costs.

INSPECTION FEE:
For refinance or purchase only, fee will not exceed 0.1%. For additional
proceeds, fee will range from 0.1% - 0.5%, based on project complexity.

FINANCING AND PLACEMENT FEES:
Negotiable.

BOND ENHANCEMENT:
Program can be used to provide a AAA-rating credit enhancement of tax exempt bonds.

CLOSING EXPENSES:
Standard transaction costs, including legal fees, title insurance and survey.

FHA PROCESSING TIME:
There are two stages of review for the 242/223(f) Program: a Pre-Application and Firm Commitment. The Pre-Application may be waived at FHA’s discretion. FHA’s goal review time is 120 days.

ADDITIONAL FHA 242 PROGRAM REQUIREMENTS:
Additional Program Requirements:

1. Based upon FHA’s review and analysis of the Pre-Application (if
   applicable), FHA may request a meeting with the Lender and the
   hospital to discuss the proposed transaction in greater detail.
2. Firm Commitment requirements could include a feasibility report,
   environmental assessment, project drawings and pricing (if applicable).
3. If the proposed transaction includes a transfer of ownership and/or capital improvements in a state that requires a Certificate of Need (CON), a CON must be issued or pending.
4. The hospital must agree to make monthly payments into a Mortgage Reserve Fund that will build to a balance equal to two years of debt service after 10 years.

This is a summary of general program terms.  This is not a commitment to lend.