This Statement of Policy and Rules sets forth general guidelines and standards for financings, however it does not cover all intricacies or variations which can arise and which the Authority can accommodate.
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.
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.
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.
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.
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. Furthermore, the Code mandates that certain public hearing requirements be met prior to any financing by a non-profit Health Institution.
Application
Each Health Institution seeking financing should contact the Authority to be begin the application process.
Financial Covenants
The Authority requires that most Health Institutions agree to a few certain covenants in the financing documents. Those financial covenants may include a debt service coverage ratio, and a days cash on hand requirement. Except for the foregoing financial covenants that permit the appointment of a health care consultant in the event of failure to meet those covenants, 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.
Post Issuance Monitoring
The Health Institution must meet certain rate and financial covenants throughout the life of the debt. In addition, the Authority offers post-issuance compliance assistant to aid the Health Institution with continuing to satisfy tax requirements to ensure the tax exempt status of the obligation. The Authority will also require submission of an annual certified statement setting forth the compliance of the financed project with the provisions of the financing documents.
Preliminary Agreement
The Authority requires that a Health Institution execute a Preliminary Agreement once the Authority has made a preliminary determination that the proposed 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, 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.
Financing Approvals
All financings shall be approved by the Authority’s Members. 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 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. For governmental Health Institutions, a lease/lease-back transaction is usually employed, while a loan structure is generally used for non-profit Health Institutions. Once the financing structure is finalized and documents are substantially complete, the Authority approves the execution of the various bond, note or other type of financing documents.
Nonrecourse Financing
The Authority may only engage in 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, and as such, either the Health Institution or third-party beneficiaries to the financing must pay all costs associated therewith.
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.
- 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. Additional steps and requirements may be associated with a public offering as opposed to other financing mechanisms. The Authority must approve all parties to and documents of the Project financing.
- 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). Such bonds, notes, or other types of loans are only placed with Accredited Investors as allowed within applicable federal securities laws, and are subject to resale restrictions. The Authority must approve all parties to and documents of the Project financing.
- 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, depending on the entity seeking financing.
Bank Qualification
In certain instances, the Authority has been able to work with governmental Health Institutions to obtain bank qualification under 265(b)(3) of the Code. A bank acting as lender to the governmental Health Institution will usually quote a lower interest rate than if the requirements cannot be met. However, given the Authority’s prolific number of annual issuances, meeting the requirements for “Bank Qualification” depends largely on the entity involved and structure of the financing.
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. (See Authority Consultants and Professionals Tab).
- 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.