HUD's Hospital Refi Program Off to Strong Start

WASHINGTON, DC-The US Department of Housing and Urban Development has offered hospital financing and insurance for some 20 years via a program little noticed outside of its narrow constituency. It would finance at most 10 to 20 transactions a year. That, though, is poised to change now that HUD has formalized regulations for a refi component to this program, Walker & Dunlop SPV and head of FHA Healthcare Finance Michael Vaughn tells GlobeSt.com. "HUD always had the authority to do hospital refinancings but it never put the regulations out." The refi program went active in March after a February 5th publication date for the regulations.

Vaughn, who is working on a number of transactions for the new program that are still in the preliminary stages, believes it will ultimately have a large following, for several reasons.

"There are currently about 5,000 hospitals in the US. A good number have had access to capital markets through rated bond transactions, while the non profits have been able to issue tax exempt bonds. However, these rates are not as good as the HUD rates so entities with existing 6-7% loans could achieve substantial savings by going with HUD refinancing."

In addition, he adds, a lot of those bond deals were highly structured floating rate transactions secured with Letters of Credit. "Those can be costly, which is another reasons hospitals might seek to refinance," he says.

Finally, hospitals are poised to handle more patients – more paying, insured patients – under the Affordable Health Care Act. At the same time, the act builds in penalties when care in hospitals is not properly delivered, such as penalties if there are high levels of readmissions.