Lancaster Pollard recently announced that it has closed on the first use of Federal Home Loan Bank credit enhancement by an Ohio health care provider. The transaction is only the fifth non-housing use of the enhancement by the Federal Home Loan Bank of Cincinnati, two of which have been health care projects. The 80 units of Hilty Memorial Home offers a range of services from skilled nursing to memory care to independent and assisted living. Lancaster Pollard recognized an opportunity to replace the bank credit enhancement by utilizing a new Federal Home Loan Bank (FHLB) credit enhancement option made available as part of the 2008 Housing and Economic Recovery Act. The little-known structure had been used only once before in Ohio and the structure expires after 2010.
As a small, rural provider with limited liquidity, Hilty would have faced challenges in accessing capital via conventional channels. In late 2009, Hilty faced a dramatic increase in the corresponding bank’s credit enhancement fee. Hilty maintained a strong desire to keep its local bank, First Federal of the Midwest, involved in the project, and it also sought financing to respond to demand for additional assisted living units.
Hilty replaced the larger bank’s LOC wrap with an FHLB LOC wrap and retained its local bank as the primary credit supporter. The $4.16 million in tax-exempt bonds also financed a small assisted living expansion project. Further, the FHLB enhancement carries an evergreen renewal period, helping to mitigate future renewal risk for the 20-year bond issue. By using the FHLB enhancement, Hilty was able to capitalize on strong local bank relationships, refinance, and add new revenue-generating units without increasing its cost of capital.
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