Embed Size (px)
Citation preview
Presented by:
Terry Glasscock,
Senior Project Consultant, Capital Link
Health Choice Network Of Florida
June 2014
Capital Financing: Strategies and Tools For
Success
In truth, there has never been a better
time to initiate a capital project.
Nor will there likely be a better time for years to come.
Window of Opportunity
• Lowest Interest rates• Stagnated building costs• Strategic Changes Ahead
(Medicare and Medicaid)• Government Financing Programs
NMTC and FDA
#1. Interest Rates
Interest Rates
• Fed Funds – 0%• TE Bond - .25%• Prime – 3.25%• Inflation - 0%
Rates Today Five Years Ago
• Fed Funds – 3.00%
• TE Bond -4.5%• Prime – 5.0%• Inflation – 4%
I’ll bet Five Years From Now???won’t see lower interest rates in your life time
#2. Building Costs
Building Costs
• Inflation rate – 1%• Construction bids – at or under
budget
Building Costs
#3. Strategic Changes Ahead
1900 – 3% GDP (Gross Domestic Product).
1964 – 6% GDP.
1994 – 15% GDP.
2020 – 25% GDP.
Per person expenditure for healthcare:
1965 - $205
2000 - $4637
2010 - $8233
Healthcare Costs
Office of Economic and Cooperative Development
MedicaidMedicare
Social Security, Medicare & MedicaidOutlays as a Percentage of GDP 1990-2075
1990 2000 2010 2020 2030 2040 2050 2060 20700
4
8
12
16
20
24 Social Security
Source: C. Eugene Steurle and Adam Carasso, (Budget Crisis at the Door), The Urban Institute, 2003. Based on data from the Congressional Budget Office, “A 125Year Picture of the Federal Government’s Share of the Economy, 1950-2075,” July 3, 2002, table 2.
Influences:
Federal Receipts vs Entitlement Spending
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
12034
2035
2036
2037
2038
2038
2040
0
2
4
6
8
10
12
14
16
18
20
22
Baseline SS, Medicare, and Medicaid
Source: C. Eugene Steurle and Adam Carasso, (Budget Crisis at the Door), The Urban Institute, 2003 Based on data from Budget of the U.S. Government, FY 2004 and CBO’s “Analysis of the President’s Budget, FY 2004.”
(As percent of GDP)
Defense51%
Social Secu-rity13%
Med-icaid1%
Safety Net6%
Inter-na-
tional Affairs
5%
Transporta-tion4%
In-ter-est6%
Every-thing Else15%
1962
Defense23%
Social Secu-rity20%
Medicare13%
Medicaid10%
Safety Net13%
International Affairs
1%
Transporta-tion3%
Interest6%
Everything Else12%
2011
Federal Government Spending
MedicaidMedicareS.S.43%
MedicaidMedicareS.S.20%
Congress’ own Commission on Entitlement Reform
reported that SS, Medicare, Medicaid and interest on the national debt will exceed
all federal income by 2030
Entitlement programs cannot be sustained at
current levels!Medicaid, Medicare, S.S.
Will be altered!The Window of Opportunity
Will Close.
So, How Can I Do This?
Business Plan Financial Forecasting Funding Considerations Financing Options
Business Plan and Financial ForecastCritical!
Components of a Business Plan
• CHC description and background
• Market analysis and Growth potential
• Organizational experience and structure
• Project Details• Financial history and
forecast
Business Plan: Financial Section
Financial Feasibility Historical Performance (three
years audited) 5-7 year Forecast Project budget Sources and Uses Financing Structure
Modeling the Impact of Your Capital investment Project
How will the project enhance your ability to be financially successful over the long-term?Increased VolumesHigher cost reimbursementHigher profile/fundraisingImproved recruitment/retention/
productivity
Sources & Uses Of Project Funds
Funding
Health Center Cash Reserves
Federal Government: ACA, CDBG, EDA, USDA, OCS, NMTC
State/Local Government
Grants/Appropriations
Foundation Grants—Private or Corporate
Hospital or Other Partners
Community Capital Campaigns
In-Kind Gifts, e.g. Donated
Land/Equipment, $1.00/Year Lease for
99 years
Equity/ Grant Funding
Financing Components
TE Bonds
Bank Loan
HRSA LGP
USDA28
Fed Grant
CCHN Ventures Loan
Foundation
State Funds
NMTC
Grants/Gifts
Combining the BestFinancing Sources
• Structure considerations mean big financial differences!
Let’s assume a $10,000,000 project.
ConventionalBank Loan
Conventional Bank Loan
• Loan 80% of project value - $8,000,000• Interest rate 6.5% with 25 year amortization• Where will the remaining $2,000,000 come
from?– Sale of existing building?– Hospital contribution?– State? – Capital Campaign?– Government grant
Conventional Bank Loan
Sources of Funds:
Bank Loan…….$8,000,000Other……….….$2,000,000Total……………$10,000,000
Annual Debt Service (P&I)…..$ 655,032
New Markets Tax Credits
NMTC Magic!
NMTC Hypothetical CHC ProjectAssumes $10 million in Project Costs
Equity Investor
CDE LLC
Equity investment ~ $3 million
Eligible CHC or “Special Purpose Entity”
established by CHC
Fees & Reserves ~$1 million
NMTC Fund LLC
$11 million investment into CDE
$10 million in loans
Bank or TE Bond Debt
“A Loan”: $8 million“B Loan”: $2 million
$8 millionLeverage Loan
$4.29 million in tax credits (39% over 7 years)
Lender
Weighted Average Cost of Capital ~ 5.2% in current market; ~$520,000 interest-only for 7 yrs; refi $8 million after 7 years
Tax credits & distributions to pay Leverage Lender
Loan payments
New Markets Tax Credits
• “Investment” that isn’t repaid• 20% of total project cost• Finding a Community
Development Entity (CDE)• Application and awards
37
Bank Loan and NMTC
• NMTC investment approximately 20% of project cost
• Bank loan for the balance - $8,000,000 interest only for 7 years – same rate
• $2,000,000 in “free” money!
Bank Loan: NMTC – Interest Only
Sources of Funds:
Bank Loan……..$8,000,000NMTC….……….$2,000,000Total…………….$10,000,000
Annual Debt Service………….$ 520,000
USDA
• Usable with other options• Population 20,000 or under• Loan guarantee 90%• Direct Loan 3.5% for 40 years
40
USDA Direct Loan Structure
• Loan will be 80% of project Cost - $8,000,000.
• Roughly 3.5% interest rate with 40 year amortization.
• Where will the remaining $2,000,000 come from?
USDA Direct Loan
Sources of Funds:
USDA Loan……..$ 8,000,000Other…………….$ 2,000,000Total……………...$10,000,000
Annual Debt Service………..$ 371,982
Tax Exempt Bonds
• With other options• NMTC• State issuing authority• Private Purchase by Bank
43
Tax Exempt Bonds and NMTC
• NMTC investment approximately 20% of project cost - $2,000,000
• TE Bonds for the balance - $8,000,000 interest only for 7 years
• Interest rate – 3.9% (fixed 10 years)• No need for additional financing
TE Bond: NMTC
Sources of Funds:
TE Bonds…..…..$ 8,000,000NMTC….……….$ 2,000,000Total………….….$10,000,000
Annual Debt Service…………..$ 312,000
Foundation PRI
• Program Related Investment• With NMTC• HRSA LG• Private Purchase (Non-profit
Foundations)
46
Foundation and NMTC
• NMTC investment approximately 20% of project cost - $2,000,000
• 80% federal guarantee• No need for additional financing• Loan for the balance - $8,000,000
interest only for 7 years• Interest rate – 3.0%
Foundation: HRSA LG and NMTC
Sources of Funds:
Tax Bonds……...$ 8,000,000NMTC….……….$ 2,000,000Total……………..$10,000,000
Annual Debt Service………..$ 240,000
Project Feasibility Analysis
• Paid for by HRSA• Will analyze using the examples shown above with
your financial and project information• Will show how much you can comfortably borrow
under each scenario. • What we will need from you:
– Description of the project– 3 years of audits– Price of project– Street address of site
• Business and Market analysis loans also available through CCHN Ventures.
