New opportunities emerging for non-profit hospitals to issue bonds

For quite some time now, non-profit hospitals have all but had their hands tied when it came to issuing bonds, hamstrung by turmoil in the financial markets and falling credit ratings. Now, such hospitals have some new options to consider that could greatly improve their borrowing power.

One example comes in the form of changes to the Tax Reform Act of 1986, which has been changed by the new stimulus law to allow non-profit hospitals to temporarily issue $30 million per year in tax-exempt bank-qualified bonds per year. Previously, the limit was $10 million per year. These deals not only expand a hospital's credit power, they're also fast, taking as few as 60 days to close, compared with regular tax-exempt deals taking a typical 90 days or more. The icing on the cake is that banks typically buy these bonds at lower rates than conventional tax-exempt bond rates, since typical munis aren't exempt from federal taxes.

Another new option brought on by the stimulus law is the the Build America Bonds program. Under BAB, the federal government will pay a federal tax credit equal to 35 percent of the interest on the bond every year throughout the entire life of that bond offering. (It's worth noting that hospitals who hope primarily to defray their construction costs with the tax credit may lose on this deal if such costs shoot up faster than the worth the credit.)

Both programs sunset as of December 31, 2010 unless Congress renews them, so hospitals have only 18 months or so to jump in, experts note.

To learn more about these bond options:
- read this Health Leaders Media piece

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