The Authority offers a broad range of financing programs to health care organizations for the financing and refinancing of their capital projects, equipment acquisition and working capital. The following is a summary of currently available financing vehicles.
Stand-Alone Bond Financings
The Authority's most frequently used financing options include publicly offered bond issues for large projects and private placement of bonds or notes for smaller projects. Bond issues can be structured with fixed or variable interest rates and with or without credit enhancement or ratings. For example, a public bond issue may be enhanced by private municipal bond insurance or a letter of credit if the benefits will offset the additional cost of the premium. FHA-insured mortgage program is another enhancement that can provide savings to borrowers. Additionally, bond issues can be sold with or without a rating from one or more of the three primary rating services.
The following four Authority products were designed to meet the special borrowing needs of New Jersey's health care organizations.
COMP Program
The Variable Rate Composite Program ("COMP") is designed to lower the costs of issuance for smaller borrowings. Under the program, bonds can be marketed for several borrowers at once, yet each borrower is only responsible for its own series of bonds. The standardization of documents and simultaneous marketing of the bonds reduces the costs of issuance for access to capital markets.
What can COMP offer your organization?
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Low cost variable interest rate debt
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Loan terms negotiated directly between the borrower and the credit enhancer
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Security provided through equipment liens and/or master indenture notes
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Standardized documents to cut drafting time
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Straightforward and uncomplicated prepayment terms
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Shared costs of issuance among several borrowers
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Ability to issue both taxable and tax-exempt bonds
The COMP Process includes the following…
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Borrower requests an application
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Authority's underwriter works with the borrower to obtain a letter of credit
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Credit provider indicates the conditions upon which the borrower will be approved and negotiates various terms and conditions
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Documents are drafted
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Due diligence process is completed
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Bond issuance is requested at an Authority meeting
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Closing on the bonds
In order to be eligible for the Program, a borrower must provide a letter of credit.
Capital Asset Program ("CAP")
The Capital Asset Program ("CAP") is designed to take advantage of bonds issued prior to the 1986 changes in the tax laws. Loans under the program are continuously repaid, making fresh funds available for other health care organizations in need of capital.
What can the CAP offer your organization?
- Quickly approved applications from a credit provider familiar with the health care industry
- Historically low variable interest rates
- Loan terms negotiated directly between the borrower and the credit enhancer
- Security provided through equipment liens and/or master indenture notes
- No required arbitrage rebate
- Available funds for certain "bad money" uses (i.e. parking garages, office buildings)
- Standardized documents to cut drafting time
- Straightforward and uncomplicated prepayment terms
The CAP Process includes the following…
- Borrower requests an application
- Submitted application is passed on to the credit provider for review
- Credit provider indicates the conditions upon which the borrower will be approved
- If conditions are acceptable, Bond Counsel is selected
- Documents are drafted
- Due diligence process is completed
- Loan approval is requested at an Authority meeting
- The loan closes
In order to be eligible for the Program, a borrower must:
- be a 501(c)(3) organization, and
- be credit qualified by the CAP credit provider
Equipment Revenue Note Program
The Equipment Revenue Note Program ("ERN") is designed to offer both an easy and efficient method of financing and refinancing equipment.
What can ERN offer your organization?
- Low cost fixed and/or variable interest rate debt
- Negotiated loan term that will likely parallel the life of the equipment
- Security provided through equipment liens and/or master indenture notes
- Pre-approved negotiated private placement process that shortens the process by as much as a month's time
- Minimal financing costs
- Standardized documents to cut drafting time
The ERN Process includes the following…
- Borrower enters into a Memorandum of Understanding with the Authority
- Bond Counsel is requested
- Borrower either works with Authority staff or finds its own note purchaser
- Purchaser is identified and documents are finalized
- Due diligence process is completed
- Sale approval is requested at an Authority meeting
- The loan closes
In order to be eligible for the Program:
- The issue size must be $15 million or less
- The proceeds must be used only for equipment acquisition costs, and
- The bonds must not be rated
Bond Financing Vehicles
The New Jersey Health Care Facilities Financing Authority offers numerous financing vehicles to meet the capital needs of New Jersey's health care providers. For larger projects, competitive and negotiated public offerings have been the most frequently used options. An alternative to selling securities in the public marketplace is the private placement, which is typically used for smaller projects.
Competitive Sale
A competitive sale is generally used for transactions of up to $50 million with solid credit and straightforward structures. To complete a competitive issue, a financial advisor is selected to work with members of the financing team to establish contractual terms, obtain credit ratings and enhancement (if available and cost effective) and secure a repayment structure for the issue. A notice of sale is then placed in the appropriate publications. Sealed bids are submitted and analyzed; the firm or group of firms with the best bid that meets the established criteria is awarded the bonds.
Negotiated Sale
Negotiated sales are permitted when the issue involves: the sale of complex or poor credits; complex financing structures (such as those that include the simultaneous sale more than one series with each series structured differently); a large issue size; variable rate bonds; programs or financial techniques that are new to investors; or volatile market conditions. To complete a negotiated issue, a senior managing underwriter is selected to work with other members of the financing team to establish contractual terms, obtain credit ratings and enhancement (if available and cost effective) and secure a repayment structure for the issue. The senior managing underwriter, and any other underwriters who might have been appointed, test interest rate levels and bond structure through a process called "pricing". The bonds are awarded to the senior managing underwriter or to a group of firms headed by the senior managing underwriter following a negotiation of interest rates and fees.
Private Placement
A private placement is generally used for issues that meet the criteria for a negotiated sale, but are determined by a financial analysis to be less expensive on a present value basis if completed as a private placement. They are also used if various circumstances (i.e., credit considerations) would limit the effectiveness or usefulness of a public sale. To complete a private placement, the working group structures the financing and develops the documents including, for some transactions, a private placement memorandum to be distributed to interested bond funds, banks and other knowledgeable investors. Either a private placement agent is appointed to work on the transaction or, if requested by the borrower, the Authority will consider directly placing its bonds. Bids are solicited from a pool of potential investors and are evaluated on the basis of the lowest interest cost and covenant requirements. The bonds are sold to the investor(s) whose bid is most satisfactory.
An outline of the steps involved in the financing process for each of the financing vehicles can be provided at your request. For further details or to schedule an appointment to discuss your financing needs, contact: Dennis Hancock, Deputy Executive Director and Director of Project Management at: (609) 292-8585.
Summary of the Authority Administrative Fee Schedule (1)
NJHCFFA Initial Fees
IMPORTANT: The initial fee structure detailed below reflects a change voted upon by the Members in June 2007. The new fees will be effective with the Authority's December 31, 2007 billing cycle.
Bond or Note Issues
Authority borrowers must pay an initial fee of 2.5 (.025%) basis points on the par amount of the bonds up to a maximum size (currently $85,000,000), which is adjusted annually by the average of the New York and Philadelphia Consumer Price Index for the previous year.
There is also a one-time $10,000 fee per series of bonds that are issued at the same time. If the bonds are entirely refunding bonds, the one-time per series fee is $5,000. Multiple series of bonds that are issued under different official statements are treated as totally separate issues for billing purposes.
The initial fee will be collected upon a borrower's signing of a Memorandum of Understanding with the Authority. This will not be refundable if the financing does not close. The per series fee will be collected at closing.
The Equipment Revenue Note Program has no initial fee and no per series fee. Loans through the Capital Asset Program have a flat $500 initial fee and no per series fee.
Annual Fees
IMPORTANT: The annual fee structure detailed below reflects a change voted upon by the Members in June 2007. The new structure commenced with the Authority's December 31, 2007 billing cycle. Existing borrowings are held harmless from any fee increases caused by this change.
Traditional Bond or Note Issues
Ten basis points (.10%) on the declining outstanding balance as of year end, up to a maximum size (currently $85,000,000) which is adjusted annually by the average of the New York and Philadelphia Consumer Price Index for the previous year. This will be billed on the following June 30th and December 31st with a minimum annual fee of $2,500 per series.
Variable Rate Composite Program
Ten basis points (.10%) on the declining outstanding balance as of year end, up to a maximum size (currently $85,000,000) which is adjusted annually by the average of the New York and Philadelphia Consumer Price Index for the previous year. This will be billed on the following June 30th and December 31st with a minimum annual fee of $2,500 per series.
Equipment Revenue Note Program
Seven and a half basis points (.075%) on the declining outstanding balance as of year end to be billed on the following June 30th and December 31st billings with a minimum annual fee of $2,500. One half of the estimated annual fee will be collected when the Memorandum of Understanding is signed; this half of the fee is non-refundable.
Terrorism Preparedness Program
Five basis points (.05%) of the original bond size, per series of bonds issued, currently capped at $40,000, payable semi-annually in advance
Capital Asset Program
All annual fees are Program expenses paid through the interest rate charged on the loan.
Monitoring Fees
In addition to the above initial and annual fees, the Authority charges a monitoring fee of $420 per low and moderate income unit for those issues that must comply with Section 142(d) of the Internal Revenue Code. (this fee is subject to inflationary adjustment)
(1) - Specifics of the Authority Fee Schedule are available by contacting the Authority offices
Fee Schedule for Trustee Services (Adopted April 30, 1996)
Initial Fee
.75 basis points (.0075%), calculated on the basis of the original principal amount of the issue
Annual Fee
1 basis point (.01%), calculated on the basis of the original principal amount of the issue
- Minimum annual fee equal to $1,500
- Maximum annual fee equal to $8,000
Registrar, Transfer and Paying Agent
Flat fee for Registrar, Transfer and Paying Agent of $500 per year
Escrows
Flat acceptance fee and annual fee of $500
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