receive NMTC financing must be active in low-income communities, as defined by specific criteria, such
as having:
Fifty percent or more of gross income derived from an eligible census tract; and
Forty percent or more of services performed, and tangible property derived from, an eligible
census tract.
Funding Examples. NMTC proceeds have financed a variety of projects in distressed U.S. communities for
organizations such as manufacturers, alternative energy companies, charter schools, and health care
providers. Hospital borrowers have accessed the NMTC program primarily to finance the purchase,
construction, or renovation of projects that will provide long-term benefits to low-income communities.
Examples include a children’s hospital in a low-income community on the West Coast that recently
received $30 million in NMTC funding for facility improvements and a Boston hospital that used $20
million of NMTC funding to restore its historic medical center.
The NMTC program has been found to be an attractive financing option because NMTC loans typically
have below-market interest rates (typically one to three percent below market), lower fees, and more
flexible loan terms (e.g., longer amortizations and interest-only payment periods). Health care
borrowers should be aware, though, of the generally increased amount of time and effort that is
required to complete a financing through the NMTC program. In addition, extension of the NMTC
program through 2011 is currently subject to Congressional authorization, which is expected this fall.
For more information, see
www.cdfifund.gov.
Debt Restructuring
Hospitals under significant financial strain, with little liquidity and high debt burden, may want to
consider restructuring their existing debt portfolio. Reducing or eliminating tax-exempt bond debt and
other securities can offer liquidity from immediate cash payouts and remove securities that may limit the
organization’s capital position and its ability to undertake new investments.
4
When hospitals are experiencing financial distress and are in danger of default on debt and insolvency,
“investors and lenders are often prepared (and may expect) to restructure their debt, including cashing
out at a discount, reducing principal and interest, stretching maturities and changing payment terms. In
certain cases, these restructuring efforts may also include the compromise of some or the entire initial
debt obligation,” note two experts. 4
For example, a 550-bed hospital in upstate New York used debt restructuring as one strategy to achieve
a turnaround within two years of filing for bankruptcy protection with debts of $90+ million. The
hospital negotiated a five-year deferral of debt from secured creditors, which was expected to save the
hospital $12 million during that period.
5 Hospitals should consult with their financial advisor and legal
counsel to identify whether debt restructuring can and should be pursued.
Asset Sales
Health care leaders should be asking hard questions about their existing portfolio of hospitals,
businesses, services lines, and real estate to ensure that they have the right portfolio for changing
competitive conditions. Divestiture of non-core assets may represent a significant capital-raising
opportunity for many hospitals and health systems, and a means to focus the organization on core
mission activities.
Non-Core Businesses. Businesses accumulated by hospitals and health systems during the past decades,
such as long-term care facilities, home health and hospice agencies, managed care plans, joint-ventured
A Guide to Financing Strategies for Hospitals
