IDAHO HEALTH FACILITIES AUTHORITY
STATEMENT OF POLICY AND RULES CONCERNING FINANCING AND REFINANCING FOR NONPROFIT AND GOVERNMENT HEALTH INSTITUTIONS
STATEMENT OF POLICY AND RULES CONCERNING FINANCING AND REFINANCING FOR NONPROFIT AND GOVERNMENT HEALTH INSTITUTIONS
This Statement of Policy and Rules sets forth general guidelines and standards for financings.
Legislative Intent. The Authority's legislation provides that the Authority utilize its financing expertise on behalf of qualified Idaho nonprofit organizations and governmental entities to facilitate access to tax-exempt financing permitted under the Internal Revenue Code (the "Code") or, in the alternative, to facilitate financings that may be taxable under the Code but that may be exempt from State of Idaho income tax, or that derive some other benefit from the Authority's involvement.
back to top
Financing Eligibility of Projects. The Authority is authorized to finance or refinance capital needs for all eligible projects, including any nonprofit or public: hospital, clinic, nursing home, or other health care facility, laboratory, laundry, administration building, research facility, maintenance, storage or utility facility, auditorium, dining hall, food service and preparation facility, mental and physical health care facility, dental care facility, nursing school, medical teaching facility, or other structures or facilities, and all necessary, useful and related equipment, furnishings and appurtenances and including without limitation the acquisition, preparation and development of all lands, real and personal property. Ineligible projects include the financing of working capital, including among other things, food, fuel, supplies, or other items that are customarily considered as current operating expenses. Of course, projects to be financed on a tax-exempt basis must also satisfy the requirements of the Code.
back to top
Eligible Borrowers. Entities that may borrow from the Authority may be either public hospitals or institutions, or private not-for-profit hospitals, corporations or institutions (collectively referred to as "Health Institutions" ). Such Health Institutions must be authorized by law to provide or operate health care facilities, either directly or indirectly through one or more affiliates, in the State of Idaho. Generally, the Authority determines whether the prospective borrower's services are health care related by reference to licensing and other state law requirements.
back to top
No Religious Facilities. The Authority cannot finance any property used or to be used primarily for sectarian instruction or study or as a place for devotional activities or religious worship. However, non-profit corporations with a religious affiliation may seek financing from the Authority for those portions of their property that are not principally used for sectarian instruction, study, devotional activities or religious worship.
back to top
Public Benefit Review, Public Hearing. Under the Act, the Authority is required to review all proposed financings to examine whether such financings will provide a public benefit by promoting the health and welfare of the people of Idaho. At this time Idaho is not a "certificate of need" state and any reviews of proposed financings by the Authority are not intended to serve as a substantive certificate of need review. Furthermore, the Code requires that a public hearing be held to receive public testimony regarding a proposed financing for any non-profit Health Institution and, following the hearing, the proposed financing must be submitted to the Governor of the State of Idaho for his approval.
back to top
Application. Each Health Institution seeking financing must submit an application to the Authority on such form as it may require describing the facilities to be financed, the organization, the public purpose and benefit, the amount of the financing and such other matters as the Authority may deem relevant (collectively referred to as the "Project").
back to top
Financial Covenants. The Authority requires that most Health Institutions agree to certain covenants in the financing documents. Perhaps the most significant of these is that the Health Institution agrees to permit the Authority to appoint a consultant specializing in health care issues to analyze and prepare a report on the Health Institution’s operations if the Health Institution fails to meet certain financial performance measures. Those financial covenants may include a debt service coverage ratio, and a days cash on hand requirement. Those covenants may be waived for Health Institutions whose financial situation or organizational structure makes them inappropriate. Except for the foregoing financial covenants that permit the appointment of a health care consultant in the event of failure to meet those covenants, or, certain financial covenants the Authority may deem appropriate for specific Projects, the Authority generally does not impose any financial covenants on Health Institutions unless the underwriters, lenders, bond insurers or other entities involved in a financing require financial covenants based on credit analysis.
back to top
Annual, Quarterly, or Periodic Reporting. The Authority will require that for each Project financed, the nonprofit organization or governmental entity who will own and operate the project must submit annually a certified statement setting forth the compliance of the Project with the provisions of the financing documents. Such statement shall include all tax information and financial covenants associated with the Project, and contain information from interim, quarterly and audited financial statements. The Authority has the right to review and monitor the same for compliance. The Health Institution shall take all steps necessary to make such information available for the Authority's review annually, or quarterly as applicable, and otherwise at the Authority's request.
back to top
Internal Revenue Regulations Section 150-2(d) D Official Statement of Intent/Reimbursement Resolution. After reviewing a submitted application, the Executive Director of the Authority and the Members of the Authority's Board may issue an IRS defined Statement of Intent, which allows the Health Institution to begin accruing Project expenses for possible reimbursement from bond proceeds, if a financing is approved by the Authority and if bonds are ultimately issued for the Project. An IRS required Statement of Intent is solely for the purpose of meeting Code requirements and is not an indication, in any way, that the Project has met the Authority's financing requirements or is receiving initial or final approval from the Authority's Members. Alternatively, and in most cases, the Authority will not take any action, but will advise the Health Institution to adopt an appropriate reimbursement resolution, which is also an acceptable way to comply with the Code. The Authority encourages Health Institutions to discuss with the Authority and legal counsel the details of any proposed reimbursement resolution. The Authority can provide forms of reimbursement resolutions to Health Institutions.
back to top
Preliminary Agreement. The Authority requires that a Health Institution execute a Preliminary Agreement once the Authority has reviewed the application and made a preliminary determination that the Project is one that can be considered for financing by the Authority. The Preliminary Agreement provides that the Health Institution shall indemnify the Authority and that, in the event the financing is not completed, that the Health Institution will pay all out-of-pocket costs of the Authority and the fees and costs of the various professionals involved in the transaction. The Authority will provide estimates of these fees at any time to assist the Health Institution in evaluating its exposure for fees and costs.
back to top
Financing Approvals. All financings of a Project shall be approved by the Authority's Members. The authorized officers for signing and executing related documents shall be designated in the Member resolutions authorizing a Project's financing. Each Project is examined from a financial perspective to determine the most appropriate means of financing the project, and the Authority reserves the right to determine the final financing structure for the Project. Each Project is examined from both the Authority's and Health Institution's perspectives, the goal being to evaluate available financing options and to select a financing which is adequate to meet the Project perspectives and Project costs, provides flexibility for future financings and refinancings and accommodates the Health Institution's financial strength and the needs of the Health Institution's constituents. Typically, the Authority on behalf of a Health Institution accomplishes Project financing through the issuance of tax-exempt bonds or a note. For governmental Health Institutions, a lease/lease-back transaction is usually employed, while a loan structure is generally used for non-profit Health Institutions. Below is an explanation of the Authority's two-step approval process, although a single, final approval process is often used depending on the Project.
back to top
- Initial Approval. Under this approval, the Authority would approve the public purpose of the Health Institution and the Project itself as meeting the guidelines set forth in this Statement of Policy and Rules. During this approval process the Authority provides an initial recommendation as the financing structure of the Project based on the amount to be financed, the financial profile of the Health Institution and other Project-related considerations. The Authority would acknowledge that bonds or other types of financing are expected to be issued at a later date. Prior to the Authority Board adopting an Initial Approval resolution, the following documentation is required: (1) the application; (2) a letter of intent to provide financing from a bond purchaser, underwriter, letter of credit bank, or other financial institution; (3) a public hearing as required under the Code; (4) a financing plan; (5) due diligence by the Authority as to the public purpose and public benefit of the Project; and (6) confirmation that there is no recourse liability or other such liability to the Authority as a result of the Project financing.
- Final Approval. Under this approval, the Authority would give its approval of the issuance of bonds, notes or other types of financing and approve the execution of the various bond, note or other type of financing documents. This would also include approval of the specific financial terms of the financing. Prior to the Authority Board adopting a Final Approval resolution, all of the requirements for the Initial Approval apply, plus the Authority requires a formal commitment from the bond purchaser, underwriter, letter of credit bank, or other financial institution, and materially final drafts of all Project financing documents.
Nonrecourse Financing. The Authority may only engage in Project financing as long as the bond, note, or other type of financing is "nonrecourse" to the Authority. Therefore, there can be no liability to, and no claims against, the Authority, its Board members, its officers or its employees as a result of the Project financing. Such financing shall not put the Authority's assets at risk. Either the Health Institution or third-party beneficiaries to the Project financing must pay all costs of the Project financing. The lender, initial purchaser or underwriter of the financing shall acknowledge language in the financing documents to this effect. The Health Institution shall indemnify the Authority against any losses or expenses that the Authority may incur arising out of the Project transactions.
back to top
Financing Alternatives. Three alternative permitted methods of financing exist in the financial markets. The Authority and the Health Institution will consult together to determine the most advantageous method.
- Public Retail Issuance. Bonds may be issued by the Authority and sold to the public through the retail bond market. This financing alternative would typically be used for larger transaction amounts for a Health Institution with a strong credit profile. Credit enhancement, in the form of an unconditional and irrevocable letter of credit issued by a bank, or bond insurance issued by a nationally recognized bond insurance company, may be advisable to achieve the lowest interest rate. However, provided that the Health Institution has a strong credit profile, the Authority does not require credit enhancement and the decision to obtain credit enhancement is based on whether the Health Institution determines that it will provide a financial benefit. Under certain circumstances the Authority, or the lender, may require a financial feasibility report by a nationally recognized firm. A bond reserve fund may be required depending upon the Heatlh Institution's credit profile or existence of credit enhancement. Bonds must be rated investment grade, or if the bonds are not rated investment grade then a feasibility report by a nationally recognized firm must be obtained. The Authority must approve all parties to and documents of the Project financing.
- Private Placement. Bonds, notes, or other types of loans may be issued by the Authority and sold privately to institutions or other "Accredited Investors" (as defined by federal securities' laws and generally meaning institutioned or sophisticated high net worth investors), without a letter of credit or other credit enhancement, provided the Policies and Rules set forth herein have been met. Such bonds, notes, or other types of loans are only placed with Accredited Investors as allowed within applicable federal securities laws. Such bonds will be transferable only under the terms provided in an opinion of experienced securities counsel, delivered at the closing of the financing, and approved by the Authority, and only upon the certification by the transferor or transferee that all terms and conditions in the counsel opinion have been met. Each purchaser of such financing instruments shall provide at closing a private placement letter representing and acknowledging that said purchaser meets all requirements as an "Accredited Investor" for private placement, as provided under applicable federal securities laws. The private placement letter must also represent, among other requirements, that: (a) the bonds (if any) are not rated; (b) no Authority assets or revenues secure the financing instruments; (c) the financing instruments are payable solely from the revenues and assets of the Health Institution; (d) the Accredited Investor has decided to purchase the financing instruments only after reviewing all available information regarding the Health Institution’s assets and revenues; and (e) the Authority shall incur no liability or be subject to a claim for liability arising out of the financing transaction. The terms of the financing instruments shall contain similar provisions that shall bind all future purchasers. The Authority must approve all parties to and documents of the Project financing.
- Bank Loans/Leases. Financing may be obtained from a bank or similar lender by a Health Institution through the Authority. Such financing may be structured as a loan or lease transaction. Limitations on the lender's ability to assign a participation interest to other lenders in such indebtedness will be contained in the financing documents. The Authority may impose other conditions based on the Project.
back to top
Finance Team. The Authority, as a statewide issuer responsible for providing financing for a large number of Health Institutions, has determined that the most efficient method to provide such financing while ensuring that the Authority's ability to do so remains intact, is to itself carefully select, or monitor the selection by the Health Institution, of the finance team members as described below.
back to top
- Disclosure Counsel. For public issues requiring disclosure, the Authority requires that Chapman & Cutler (www.chapman.com) be used as disclosure counsel. An underwriter may have separate underwriter's counsel if they desire, although generally Chapman & Cutler provides both functions.
- Bond and Authority Counsel. The Authority uses Sherman & Howard (www.sah.com) as bond counsel and Hawley Troxell Ennis & Hawley LLP (www.hteh.com) as legal counsel to the Authority. In smaller transactions, Hawley Troxell Ennis & Hawley LLP acts as both bond counsel and Authority counsel.
- Financial Advisor. The Authority uses Ponder & Co. (www.ponderco.com) as financial advisor.
- Trustee. The Authority in public bond issues uses Bank of New York Mellon Trust Company, N.A. (www.bnycorptrust.com) as bond trustee. In certain instances, where the transaction is part of a multi-state bond issue, other trustees will be considered.
- Underwriter/Lender. Health Institutions may select their preferred underwriter/lender; provided, however, that the Authority and the Financial Advisor review the qualifications of underwriters/lenders to determine their expertise in health care financings, their ability to access the Idaho retail market as applicable, and other relevant considerations.
- Credit Enhancers. The Health Institution may select the credit enhancer, if any, subject to review by the Authority and the financial advisor.
- Requests for Proposals. Often the Authority and the financial advisor will assist the Health Institution with conducting a request for proposals for credit enhancers or underwriters/lenders by suggesting potential candidates, formulating the request and selection criteria, and advising on the final selection.
Although the Authority periodically reviews its relationships with those transaction participants described, and because these providers provide consistency from transaction to transaction, the Authority generally appoints these participants on its own without advice from the Health Institution or requests for proposals.
back to top