HUD SECTION 242/223(f) – Office of Hospital Facilities (OHF) Processing
Section 242/223(f) – Loans for acquiring or refinancing existing hospitals that may require moderate repair or capital needs not exceeding 20% of the loan amount.
- Borrowers can be non-profit, for-profit or publicly owned facilities.
- At least 50% of patient days must be attributable to acute care; non-acute patient days include skilled nursing, rehabilitation, psychiatric and other related services. HUD will allow adjustment of the patient day calculation based on revenues.
- Loans are generally considered permanent loans in that they are disbursed in full at closing, although loans with proceeds for capital improvements can have post-closing distributions.
- Repairs and capital improvements are not subject to Davis-Bacon Prevailing Wage requirements.
- Repairs and capital improvements can’t exceed 20% of the loan. Hospitals seeking to refinance existing capital debt with a 20% or greater capital component can qualify under Section 242.
- Hospitals must have an average operating margin of at least 0.00% and an average debt service coverage ratio of at least 1.40 X for the past three years and meet at least three of the following criteria:
- Total operating expenses will decrease as a result of the financing by at least .25%
- The new interest rate will be at least .50% lower than the current rate.
- The current interest rate increased by at least 1% since January 1, 2008 or will likely increase by that amount within a year of filing the application.
- Annual total debt service for the most recent audited year is at least 3.4% of total operating revenue.
- Credit enhancement on the existing debt has been or will be imminently withdrawn, expire or the provider has been or will be downgraded.
- The existing financing has overly restrictive or onerous bond covenants.
- Other circumstances exist that demonstrate that the hospital’s financial health depends upon the refinancing of its existing debt.
- If the three-year average operating margin and debt service coverage test can’t be met, HUD will allow the tests to be recast for the prior three-year period by applying an estimate of the projected interest rate on the HUD-insured loan in lieu of the historical interest rate. Moreover, if exceptional, one-time events affected the hospital in one of the prior three years, resulting in substantially altered financial performance, HUD will allow a fourth year to be used in determining whether the operating margin and debt service coverage test are met.
- Maximum loan to value (LTV) is 90%, with the value being determined as the total estimated replacement cost + net property, plant, and equipment.
- Loans are pre-payable, assumable, and non-recourse; the maximum term is 25 years with full amortization.
Application Fee to HUD
Mortgage Insurance Premium to HUD
0.10% - 0.50%
Inspection Fee to HUD
Maximum Financing (Origination) Fee
Maximum Placement Fee
Costs of Issuance for Tax-Exempt Bond Transactions
An annual 0.65% Mortgage Insurance Premium is paid to HUD as part of the monthly mortgage payment. The Inspection Fee is based on a sliding scale of the hard cost of construction or renovation to a maximum of .50% if the costs are 20% of the loan.
- Full escrows required for property insurance, real estate taxes, and HUD mortgage insurance premium.
- A Mortgage Reserve Fund required equal to one year’s debt service after 5 years and two years debt service after 10 years is required. The Reserve is funded from the hospital’s operations.