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The Michigan Health & Hospital Association Service Corporation and the Michigan State Hospital Finance Authority offer the Healthcare Loan Program (HeLP). HeLP is a pooled, tax-exempt financing program that involves a number of health care organizations participating in a single public financing and sharing in the proceeds and costs associated with that financing. The program takes advantage of economies of scale through group participation; allowing each borrower to access low cost financing without individually incurring all of the transaction costs associated with public financing.
The following pages present the answers to several questions asked about HeLP. We are confident that you will find HeLP to be among the most attractive alternatives for financing your institution's capital needs.
If you should have further questions after reading the enclosed materials or have an interest in participating in the program, please call Gary Henriksen at the Michigan Health & Hospital Association at (517) 323-3443 or John Barton at the Michigan State Hospital Finance Authority at (517) 335-0994.
HeLP is a financing program which provides a means of efficiently financing a health care organization's capital expenditures at tax-exempt rates. The purpose of HeLP is to reduce borrowing costs by pooling a group of health care institutions to jointly participate in a single bond issue.
Borrowers not wishing (or unable) to use retained earnings to finance ongoing capital needs require external sources of funding. Although equipment financing may be included in the cost of a major construction project, hospitals often turn to their local bank and borrow at higher interest rates if a major public financing is not underway or is not available. Borrowers may be able to borrow through HeLP at rates which are lower than the earnings on their invested fund balances.
Yes, but the cost of issuing tax-exempt bonds for a single Borrower is often prohibitive unless the borrower is planning a major public financing. With HeLP, we "pool" the capital needs of several borrowers, thereby spreading those fixed costs over several borrowers. In fact, bonds are issued only when there is sufficient demand to make it economical for everyone.
Private, nonprofit (501)(c)(3) hospitals in the State of Michigan may use the program. Nonprofit nursing homes and hospices may also participate. Health care clinics, visiting nurses associations (VNA's) and ambulance companies have also borrowed from the program. If you are a health care organization with a capital need, call us to discuss whether you qualify.
HeLP funds may be used to finance the acquisition and installation of equipment or construction, or to refinance existing debt including leases. Funds may be applied to nursing homes or hospices owned by a hospital, or the nursing home or hospice may borrow independently. Working capital or accounts receivable are not eligible for financing, although if you choose to finance capital budget items through HeLP, this can free-up cash for any use you may have. Hospitals may also borrow the costs associated with the bond issuance as well as the first year credit support fees.
Variable interest rate debt usually bears a lower interest rate than fixed rate debt because the bond interest rate is periodically adjusted to the prevailing market rate, and there is a large market of buyers of variable rate debt. In exchange for the lower interest rate, participating hospitals assume some risk associated with a fluctuating interest rate.
Yes, the loan rate is limited by usury laws. In January 1982, when the bond market was at its weakest, the variable rate on loans was approximately 9.3 percent, while the Prime rate was over 20 percent. By the end of 1982, the variable rate had decreased to about 6 percent. Historically, loan rates for tax-exempt financing have been approximately 50 percent of the Prime rate.
The loan amortization may be up to 20 years, but is limited to the average remaining useful life of the assets being financed. The loan amortization is also determined by the credit support extended to each borrower.
Borrowers can prepay their loans without any penalty. Borrowers may also choose to shorten their amortization period rather than pay off their debt entirely.
No, the credit support institution would be obligated to pay the defaulting borrower's loan. To date, no borrower has defaulted on a HeLP loan.
Loans generally range from $500,000 to more than $20 million. Loans are limited by the amount approved by the Michigan State Hospital Finance Authority and the credit support institution. Hospitals achieve economies of scale for any amount of borrowing by sharing costs with other hospitals in the program.
Loan repayments are made monthly to the trustee. The principal portion of the loan is amortized equally over the number of months remaining until the loan is repaid. The interest rate is adjusted periodically, usually no more than once or twice per year depending on current market rates.
As with any tax-exempt financing, assets being financed must have a CON from the Michigan Department of Community Health or a waiver letter indicating that a CON is not required. The MHA Service Corporation staff will assist in obtaining the necessary waiver letters.
No, borrowers have been nursing homes, clinics, hospices, home health agencies, and other health related organizations providing health care services. We would be glad to discuss the eligibility of any particular borrower.
Each applicant completes an application requesting financial and operating information about the borrower. The application is submitted to the MHA Service Corporation. This information is transmitted to the Michigan State Hospital Finance Authority and the credit support facility selected for this program. The credit support facility evaluates the application for inclusion in the HeLP program. Although every effort is made to select a credit support institution with the most favorable criteria for borrowers, some borrowers may be required to obtain additional credit support.
We will be glad to provide you with a HeLP application, answer any questions you may have, and visit you to discuss the program in person.
For questions or comments, you may send an email to Gary Henriksen (ghenriksen@mha.org), or mail to:
Gary Henriksen
Michigan Health & Hospital Association Service Corporation
6215 West St. Joseph Highway
Lansing, MI 48917
Phone: (517) 323-3443
Fax: (517) 323-0913