I hope your calculators aren't too rusty, because it's time to do some basic - and not-so-basic - math. This week, our hospital went money-hunting, and they found three companies eager to help, hawking three different ways to get the money they need for the price they can afford.
While it's easy to get over-excited by terms like "interest rebate" and "stimulus funding" and extremely confused by others like "negative arbitrage" and "liquidity covenants," it's important to wade through the jargon and run the numbers on these deals.
Hearing that the USDA wants to give us a $20 million direct loan and throw their federal weight behind backing the rest sounds golden - especially when you hear the words "40-year term." But, as always, it's the fine print that might stick it to you. It is vital to remember that the USDA loan comes with some price tags, one that says there is a chance, however slim, that the money and the rate may not be there after the building is built. And although having longer to pay down the debt is enticing in this economy, it is a double-edged sword that will cost more at the bottom line.
HUD-guaranteed bonds, the other option on the table, aren't fault-free, either. Any debt will, by definition, come with a price tag. The lending term is almost half that of a USDA loan and the interest rates, once attorney fees, issuance fees, preliminary study fees, trustee fees and a host of other related fees and costs come into play, are not as clear cut and may be higher than what USDA offers.
But in this numbers game, the winner is the one who balances risks against rewards, instead of running from one or towards another. In a market situation where no one can tell what's falling next, longer terms and fractionally lower rates are not quite enough to outweigh a guarantee that the money will actually exist in three years.
Either way, this money is not free. It will all come with strings, but before they choose, let us hope that the hospital authority unravels those strings carefully, before they tie them to our county.