Alan J. Spidel
As a result of the worldwide financial crisis, investors have had a significant flight to quality. So transactions such as the FHA Section 242 mortgage insurance program for hospitals are seen as more favorable investments because the federal government puts its support behind the loan, which results in lower interest rates for the hospital.
Given the current economic situation, is more important than ever to multitrack financing options while accessing capital, which means that multiple financing solutions should be pursued simultaneously. With the markets shifting as quickly as they are, the best financing solution during the planning process may not be the best solution at closing. Multitracking financing will allow a hospital to switch gears quickly and continue its momentum, rather than start from scratch and potentially push back a construction deadline.
For a hospital's long-term capital needs, borrowers should evaluate the strengths and challenges of the FHA 242 program. The funding process may take longer, but it may deliver the best solution for the hospital.
In terms of general good financial practices, hospitals should remember to manage both sides of their balance sheets and review investments against their investment policies: With the volatility in the market, a hospital may need to realign its investment portfolio with its policy to best accomplish its goals of staying within its unique risk tolerance.
Finally, liquidity is key to financial success. Following the November state and federal elections, there may be delays in revenue from appropriations in state programs such as Medicaid. These delays in payments to hospitals may cause temporary dips in liquidity and trigger bond covenants. Especially in election years, it is important for hospitals to review their debt covenants and liquidity levels.
Publication Date: Saturday, November 01, 2008