As noted in the Waller Lansden
bulletin circulated on July 10, 2009, the U.S Department of
Housing and Urban Development (HUD), expanded the 242 Hospital
Mortgage Insurance Program to permit eligible hospitals to use 100
percent of loan proceeds from the HUD 242 Program to refinance
existing debt. HUD is now in the process of publishing official
amendments implementing these changes. Under the new rules, HUD
proposes tighter eligibility standards for hospitals seeking to
refinance debt in conjunction with the 242 Program.
To be eligible for the new refinancing option, a hospital must have
experienced an increase in its interest rate under its existing
credit facilities of at least one hundred basis points since Jan.
1, 2008, or must demonstrate that an increase is imminent. In
addition, a hospital must have maintained an aggregate operating
margin greater than 0.33 percent and an average debt service
coverage ratio of at least 1.80 for the last three fiscal
years.
Hospital groups, including the American Hospital Association, have criticized the tight standards claiming they would "limit program access to otherwise creditworthy facilities" and "exclude hospitals critically in need of relief." A link to new rules, which will be subject to public comment, is available at this link.
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