HUD Amends 242 Hospital Program

11.13.09

The U.S. Department of Housing and Urban Development (HUD) recently published Notice H 09-05, which introduces a new mortgage insurance alternative for hospitals that have struggled to refinance their existing debt in today's constricted credit market. HUD will now provide mortgage insurance to hospitals to refinance their existing debt without requiring that at least 20% of the loan proceeds be used for new construction or capital improvements. In the Notice, dated July 1, 2009, HUD provided its rationale for such a change:

"Until recently, it has been HUD's view that private capital to assist hospitals refinance debt was sufficiently available, and the demand for this type of refinancing was not as great as was the need for financing for new construction, renovation and rehabilitation, and equipment purchases. However, the downturn in the economy, which has adversely affected the availability of credit for consumers and homeowners and businesses, is increasingly affecting the financing needs of hospitals and other health care facilities. At a time when the demand for health care services is on the rise, the lack of access to capital has made it difficult for hospitals to obtain financing for facility, equipment, and technology needs, as well as meet obligations on existing debt."

The refinancing loans will be insured through the Section 242/223(f) program. In order to be eligible:

  • The hospital must have achieved an aggregate operating margin of at least 0.33 for the three most recently audited fiscal years;
  • The hospital must have averaged at least 1.80x Debt Service Coverage for the three most recently audited fiscal years;
  • The hospital must have experienced an increase in its interest rate of at least 1.0% since January 1, 2008, as a result of the credit crisis, or must demonstrate that such an increase is imminent.

The timing of this program creates an excellent opportunity for those hospitals facing difficulties in replacing or renewing letters of credit and commercial loans. As with all of HUD's mortgage insurance programs for health care facilities, applications filed under this new Section 242/223(f) program will be processed utilizing the Lean processing platform. This will allow for applicants to receive approval within a timeframe that is competitive with traditional commercial lending practices.

My company engaged BLC to refinance our 80 bed hospital. They worked closely with us during the entire loan process and successfully underwrote and funded a loan that reduced our interest rate from 9% to 5.8% I highly recommend Bedford Lending and have engaged them for a new construction project."

- John E. CFO

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