$31,000,000 “Capital Project Solution”

Keys to a Successful FHA 242 Project Financing

Alan P. RichmanPresident & CEOInnoVative Capital LLC

Norma Jean MorganChief Executive OfficerEffingham Hospital

HomeTown Health 2011 Annual Spring ConferenceApril 25-27 Sea Palms Resort

Maintaining Hospital Independence to Foster Financial Prosperity

Strategic Planning and FHA 242 Mortgage Insurance

A Roadmap to Successfully Financing a New Hospital

2

Presentation Themes

1. A Best Business Practices Approach to Developing, Structuring and Financing a Hospital Modernization Project with FHA 242 Mortgage Insurance

Including an Understanding of the Required …

• Upfront Planning Process and Rationale• Team Players• Analyses and Reports • The Timeline of Events and Milestones to Mitigate Out-Of-Pocket Risks

3

Learning Objectives

2. Building Consensus Support of the Hospital, Physicians, Board, Community and the Municipality

3. How to Obtain Municipal Financial Support

4. How to Value the Economic Benefits of the Hospital to the Community and the Return on Investment for the Municipality

5. How to Assess a Job “Well Done” v. “Just Ordinary”

4

Learning Objectives (continued)

Selecting the Team

Feasibility Assessment and Debt Capacity

Master Planning and Project Development

Milestone Planning

Governance, Management and Staff Involvement

Capital Budgeting and Key Decision Making

Composite Funding – Tax Assessment Review

Economic Impact Analyses and Municipal Return on Investment

5

The Planning Process

6

The FHA 242 Financing Transaction Timeline

STEP I. PRE-APPLICATION PREPARE & SUBMIT – Months 1-2

STEP II. PRE-APPLICATION MEETING WASHINGTON, D.C. – Month 2

STEP III. PREPARE AND SUBMIT HUD APPLICATION (inc feasibility study and Sources and Uses Statement) – Months 3-5

STEP IV. COMPLETION OF PROJECT DEVELOPMENT & DESIGN – Month 5

STEP V. ISSUANCE OF HUD COMMITMENT (req. GMP) – Months 6-7

STEP VI. HUD CLOSING AT REGIONAL OFFICE (Initial Endorsement) – Months 7-8

STEP I. ANALYZE ALTERNATIVE DEBT STRUCTURES – Months 3-4

FHA 242 Mortgage Insurance Underwriting

FHA 242 Mortgage Insured Financing

STEP II. SELECT DEBT STRUCTURE – Month 5

STEP III. SELECT UNDERWRITER –Month 5

STEP IV. FINANCING RELATED LEGAL WORK – Month 5-6

STEP V. MARKET, PRICE & CLOSE FHA 242 DEBT INSTRUMENT – Months 7-8

Objectives and Goals

To meet the medical needs of a quickly growing county that is medically

underserved.

To insure the viability of the local hospital and to retain local control.

Determine what infrastructure needs must be met to bring the hospital medical facility in line with current medical demands.

To educate the local populace of the value of local, community based healthcare.

7

Effingham Hospital Authority – Case Study

Issues to be Addressed

Existing facility was a great example of 1960’s design.

Heavy outmigration of patients due to lack of dedicated physicians in the county.

Existing hospital board fragmented as to whether to sell, move or improve the hospital onsite.

Local populace viewed the hospital as merely a “band-aid station.”

Hospital was viewed as an unneeded cost center by the county government.

8

Effingham Hospital Authority – Case Study

Solutions

Board solidified on an improvement strategy to meet the growing needs of the county and set a goal to accomplish this task over a five year period.

Started a strategy of recruiting employed primary care physicians to be based within the county.

Constructed outpatient diagnostic centers within established population centers.

Consulted with InnoVative Capital to perform a debt capacity analysis to see what type of improved facility was attainable.

Began a county wide awareness campaign.

9

Effingham Hospital Authority – Case Study

The Results

At the direction of the Board, InnoVative Capital submitted to HUD an application for FHA 242 Mortgage Insurance.

To obtain HUD’s underwriting approval, the citizens of the county petitioned the county to continue its contract to offset uncompensated care with county tax support for the term of the bonds. Approval was granted by the county.

With HUD’s approval in-hand, FHA 242 mortgage insured $30.94 million Recovery Zone Economic Development Bonds were issued and closed just prior to the 12/31/10 BABs program expiration date. The net rate was 3.6%.

Construction is on target to open a 58,000 modernized clinical space in 03/01/2012.

As an result of the physician recruitment strategy. A new surgeon was added to the staff. Surgical volume has increased by 73%.

Admits have increased by 202% and OP visits have increased 37%.

10

Effingham Hospital Authority – Case Study

11

Effingham Hospital Authority – Case Study

The Results

12

Effingham Hospital Authority – Case Study

The Results

13

Effingham Hospital Authority – Case Study

PRESS RELEASE: December 30, 2010LANDMARK FHA 242 FINANCING

EFFINHGAM HOSPITAL RECEIVES A 3.63% LOAN $31 MILLION FIXED RATE TWENTY-SEVEN YEAR BONDS

The Results

14

Questions?

Alan P. Richman

President & CEO

InnoVative Capital

Tel: 610-543-2490, Ext. 101

arichman@innovativecapital.com

Norma Jean Morgan

Chief Executive Officer

Effingham Hospital

Tel: 912-754-0160

morgano@effinghamhospital.org