A health complex in West Hartford that had never fully recovered from the losses in reimbursements and operating income incurred during the Great Recession, and from larger healthcare systems in the area, was faced with a dilemma: how do you deal with this “new normal” of operating and reimbursement parameters while still servicing its debt? Hebrew Home and Hospital, Inc. (HHH) is the not-for-profit owner of a 367-bed health campus in West Hartford, Connecticut, which features 277 skilled nursing beds, 45 beds providing hospital-level services, a 22-bed behavioral health unit and a 23-bed complex medical unit.
Originally built in 1987, the project was financed with a HUD loan funded with tax-exempt bonds, which was refinanced in 1999 by HJ Sims with a new issue of bonds collateralized with the existing HUD note (also modified to reflect the new terms). Then, in 2009, Sims Mortgage Funding (SMF) originated a new HUD loan to prepay the 1999 tax-exempt bonds and conventional bank debt that the organization used to finance capital and operating costs from establishing the behavioral/hospital unit.
However, that new unit began to face stiff competition from larger health systems getting involved in the space, and coupled with a downturn in operations caused by the Recession, Hebrew Home’s cash flow could no longer cover operations and full payment of debt service on its 2009 HUD loan. So, this year SMF assisted HHH in restructuring its capital stack, which now consists of a new, right-sized first mortgage insured by FHA, and a secondary, subordinate obligation to HUD that covers the indebtedness forgiven in the restructuring and is only payable from a percentage of surplus cash generated by future operations. The new capital structure fits in with HHH’s new operating and financial profile and better supports the facility in the years to come.