Financing options that give hospitals significant interest rate cuts for construction and other projects will expire at year’s end unless Congress votes to extend them, says a financier who specializes in these transactions.
Tom Green, CEO of Columbus, Ohio-based Lancaster Pollard, who has been instrumental in five of the 10 financing projects administered this year by the Federal Housing Authority through the American Recovery and Reinvestment Act, says the program’s extra-low interest rates have helped hospitals save millions of dollars in interest charges.
Those interest breaks are in jeopardy of expiring if Congress doesn’t extend them.
To illustrate the importance of the program, Green compared two similar hospital projects.
“These hospitals are about the same size, in the same state, with the similar credit ratings and both financing at the same time for the same amount of debt,” he said. “Hospital A did their deal at 5.25 percent interest while Hospital B did theirs at 7.75 percent interest. As a result, Hospital B will pay $19 million more in interest over the life of the bond issue.”
The Build America bonds segment of the ARRA is designed to drive down the cost of capital for municipalities, including city hospitals. Through taxable bonds with rebates, borrowers can shave additional interest off their debt, Green said.
“It is a very important tool for reducing interest rates to the lowest level possible,” he said. “It has been an effective strategy for thawing out the frozen credit market. Although the credit situation has improved, we are not out of the soup yet. It is really in the best interest in the economy and the healthcare industry that this program gets extended for the next year or two.”