Long-Term Debt 1st Student: According to Cleverley,

Long-Term Debt

1st Student:

According to Cleverley, Song and Cleverley (2011), there are four options for health care organizations for finding long-term debt financing. These four options are tax-exempt revenue bonds, Federal Housing Administration (FHA)-insured mortgages, public taxable bonds and conventional mortgage financing. Tax-exempt revenue bonds are issued against the facility's revenue and these are a low-cost source of debt financing. FHA-insured mortgages need to be approved, which is a tricky process. The approval allows the hospital to have mortgage insurance that lowers the cost of borrowing for hospitals. Public taxable bonds are a typical corporate bond issued with an investment bank as underwriter to the public markets. Conventional mortgage financing often involves placing the mortgage with an investor, but the drawback is these usually cannot cover entire projects.

A health care firm can increase its equity in three ways. The first is through retained earnings, the second from contributions and the third from the sale of equity interests. With the latter, a non-profit health care firm may not be able to sell equity interests, but can retain any earnings. Contributions, however, are usually the main way to increase equity in a non-profit health care facility. One program frequently utilized in the HVP, or home value program, where a senior signs their home over to the health care organization, and on their death title transfers to the HVP.

For profit providers have the additional ability to raise equity in the market, either from venture capitalists or from an equity issue.

2nd Student:

1. The four sources of long-term financing for health care organization are tax-exempt revenue bonds, Federal Housing Administration (FHA)-insured mortgages, public taxable bonds and conventional mortgage financing (Cleverley, Song & Cleverley, 2011). A tax-exempt revenue bond is a special bond not subject to taxes, where the bond is paid back from the revenue that the health care organization earns. A public taxable bond is similar, but does not have tax-exempt status from the government. As a result, these bonds are higher-cost in the markets, but they are also usually bigger anyway.