First financing of its kind offers hope for health care borrowers in dire markets

COLUMBUS, Ohio (Nov. 17, 2008) -- Lancaster Pollard has closed the first tax-exempt health care bond transaction to utilize Federal Home Loan Bank (FHLB) credit enhancement since Congress passed legislation authorizing this financing option in late July 2008. At a time when traditional rated banks are loathe to lend, this new option is a way for non-rated and low investment grade hospitals and senior living providers to leverage local resources to finance capital projects that might otherwise be put on hold.

     Swiss Village, a continuing care retirement community in Berne, Ind., will expand its resident wellness program by adding a $4.7 million community center to its campus. The new building offers Swiss Village residents and members of the Berne community recreational and gym space and party and meeting facilities. Community memberships will provide a new revenue source for Swiss Village.

     Lancaster Pollard financed the new wellness center and renovations to the senior living campus' assisted living facilities through tax-exempt bonds enhanced by a $7.0 million direct-pay letter of credit (LOC) from the Federal Home Loan Bank of Indianapolis. The FHLB LOC is ultimately supported by two local banks. "Health care providers can't always wait for optimal market conditions," Lancaster Pollard Vice President Steven W. Kennedy said. "There is still a lot of demand out there for health care capital, despite the frozen markets. Allowing the FHLB to enhance non-housing bonds has opened up a new source of financing for health care facilities both small and large, and we're already seeing a lot of interest in replicating this type of transaction."

     With the financial markets in turmoil, obtaining this credit enhancement (which reduces the cost of borrowing) is more difficult and could have been very costly because the large, investment-grade rated banks that typically offer letters of credit are experiencing historic financial challenges. And because the majority of local banks do not maintain investment-grade ratings, they typically could not provide health care borrowers this type of credit enhancement unless a larger national bank also participated.

     Earlier this year, however, Congressional legislation allowed the FHLB's AAA-rated letter of credit to be used in conjunction with local bank financing commitments, resulting in a financing solution on par with what can be offered by the country's strongest investment-grade rated banks, and enabling non-rated borrowers like Swiss Village to issue bonds with an AAA rating.

     "There has been great interest in this from our member banks and the FHLB system as a whole," said Milton J. Miller, President & CEO Federal Home Loan Bank of Indianapolis. "Because the local banks are able to provide greater cost savings through our letter of credit program, they can compete in the tax-exempt bond finance market with larger financial institutions and provide additional opportunities to improve their local communities."

     The local ties mean a lot to Berne, population 4,100. "When you're in a small community, relationships are very important," Daryl Martin, executive director of Swiss Village, said of involving two Berne-area banks. "We were able to get better pricing while still using those local institutions."

Elizabeth DeForest
(614) 224-8800
[email protected]

About Lancaster Pollard

     Lancaster Pollard Holdings, Inc. helps health care, senior living, affordable housing and private education organizations expand and improve their services by providing financial advice and financing solutions. The firm offers a full range of investment banking, financial advisory, mortgage banking and investment advisory services. As a leading underwriter of bonds and mortgages, Lancaster Pollard has earned a reputation for delivering sound financial advice and the most cost-effective financing options available in the market.

     Headquartered in Columbus, Ohio, Lancaster Pollard consists of three affiliated companies and has regional offices in Atlanta, Austin, Denver, Kansas City and New York. Lancaster Pollard & Co. underwrites debt securities and is a registered broker/dealer with the Securities and Exchange Commission (SEC) and a member in good standing of the Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB) and Securities Investor Protection Corporation (SIPC). Lancaster Pollard Mortgage Company provides mortgage insurance to support capital funding initiatives through government agencies, including the Federal Housing Administration (FHA), Government National Mortgage Association (GNMA) and U.S. Department of Agriculture (USDA) and is a U.S. Department of Housing and Urban Development Multifamily Accelerated Process (MAP) lender. Lancaster Pollard Investment Advisory Group, an SEC-registered investment advisor, helps nonprofit organizations create the financial means to last the life of their missions by managing total financial risk rather than just investment-associated risk.