The Capital Issue

February-March 2012

Welcome to the first edition of The Capital Issue in 2012. We’re happy to announce we are changing distribution from quarterly to bimonthly so that we can share more information more frequently. The capital markets continue to be in flux as they attempt to find a new normal in the aftermath of the Great Recession of 2008. Hence we thought you would find an update on interest rates and reviews of capital funding options for hospitals and seniors housing and care useful. On the affordable housing front, we welcome back the USDA 538 program in its new budget-neutral form. And the Nonprofit Minute provides some suggestions when deciding to hire an investment advisor.

The Federal Reserve in January announced that it expects the target fed funds rate to remain in the range of 0-0.25% until the end of 2014, in all likelihood. Prior to 2008, this would have resulted in a robust use of variable rate demand bonds backed by bank letters of credit to finance capital projects because the bonds are remarketed using short-term indices. However, we expect cost effective LOCs will continue to be difficult for any but the strongest credits to obtain due to the shrinking number of highly rated banks, the record number of LOC expirations over the next few years and the heightened capital requirements Basel III will require banks to maintain. Instead, a larger number of borrowers are using private placements to take advantage of the low short-term rates.

Although the Fed does not directly influence longer term rates, it conducted a second round of quantitative easing in 2010 that resulted in a general decrease in these rates. Further, the search for yield by long-term bond investors has begun to create increased demand for low investment-grade health-care issues, lowering the credit spread between AA-rated and BBB-rated health-care bonds. The aforementioned factors have in large part offset the fact that the historic economic advantage of tax-exempt yields compared to taxable yields at most points along the yield curve has disappeared.

Thomas R. Green, CEO

2012 U.S. Interest Rate Outlook
2/5/2012

2012 U.S. Interest Rate Outlook

Since 2008, the Federal Reserve has implemented a number of unusual monetary policy measures due to the financial crisis and its aftereffects. As a result, interest rates have declined to levels at or near historical lows; however, many investors and borrowers are now focused on the following question: What is the outlook for interest rates in 2012?

Mission Possible: Finding Capital for Stand-Alone Hospitals
2/4/2012

Mission Possible: Finding Capital for Stand-Alone Hospitals

Your mission, should you choose to accept it, is to find capital to renovate or replace your aging hospital at an affordable cost. As a stand-alone hospital that doesn’t rely on taxes, how hard can it be in 2012?

Finding Creative Financing Solutions in Today’s Markets
2/3/2012

Finding Creative Financing Solutions in Today’s Markets

The financial crisis that began in 2008 was like a large-magnitude earthquake, its aftershocks can still can be felt today by lenders and borrowers. It dramatically changed funding opportunities for both for-profit and nonprofit senior-living providers. So after this seismic shake-up, what does the financing landscape look like for 2012?

Rural Rental Housing Program Revived
2/2/2012

Rural Rental Housing Program Revived

In November, the affordable housing community enjoyed a collective sigh of relief. The president signed into law H.R. 2112, which contained the appropriation of $130 million for the U. S. Department of Agriculture (USDA) Sec. 538 program for the 2012 fiscal year. A vital rural rental housing program, which endured drastically reduced funding in 2011, had been revived.

What’s in a Name? The Decision to Hire an Investment Advisor
2/1/2012

What’s in a Name? The Decision to Hire an Investment Advisor

Shakespeare famously wrote in Romeo and Juliet, “What's in a name? That which we call a rose by any other name would smell as sweet.” The meaning: what matters is what something is, not what it is called.