Question 2 15 pts Calculate and show the debt service coverage ratio (p 379 or Excel file) for these two hospitals. Which would be more likely to get a loan using debt financing? Why? Which would be more likely to use equity financing? Why? Hospital 1 Hospital 2 Current Liabilities $145,685,000 $224.790,000 Excess of Revenue over Expenses $33,000,000 $3,500,000 Depreciation and Amortization $4,010.101 $7,645,000 Annual Debt Service Payments $6,435,000 $13,000,000 Current Assets $184,500,000 $223,400,000 Interest $2,750,000 $4.125,000 $10,000,000 Principal Payments $15.000.000 EXHIBIT 8.3 PARTIES INVOLVED IN A TAX-EXEMPT BOND ISSUANCE PROCESS Issuer Indenture of Debt Trust Loan Agreement $$$ Trustee Borrower $ (Principal & Interest) 1 Debt $$$ Investment Banker Debt $$$ Definitions/Roles Borrower-not-for-profit healthcare provider $ Indenture of Trust - an agreement between the issuer (Principal & and the trustee highlighting the rules and responsibilities Interest) of each party Investment Banker - financial services firm placing the borrower's debt with investors Investors - purchasers of the debt (will be the bank in non-bank-qualified transactions) Issuer - an organization that is a conduit between the borrower and the investors, that is able to issue tax-exempt debt on behalf of the borrower Loan Agreement - formal document between the issuer and borrowers recognizing the loan and detailing terms, conditions, covenants, restrictions, etc. Trustee - a financial institution that acts on behalf of the investors and issuer and who collects and disburses payments Investors Source: BB&T capital markets, 2011 (slide)