Introduction to Health Finance

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When an organization has decided to issue bonds there are generally a series of steps taken. These steps are 1. “The healthcare borrower updates its capital plan, measures its debt capacity and attempts to get its house in order” (Zelman, McCue, & Glick, 2009), 2. “The healthcare borrower selects key parties involved in the bond issuance” (Zelman, McCue, & Glick, 2009), 3. “The health care borrower is evaluated by a credit rating agency” (Zelman, McCue, & Glick, 2009), 4. “The bond is rated by the credit rating agency” (Zelman, McCue, & Glick, 2009), 5. “The health care borrower enters into a loan agreement with the governmental authority, the issuer of the bonds” (Zelman, McCue, & Glick, 2009), 6. “The underwriters sell the bonds to bondholders at the public offering price, and the trustee provides the health care provider with the net proceeds” (Zelman, McCue, & Glick, 2009) An alternative to traditional equity and debt financing is leasing. Leasing is undertaken primarily for what purposes? Organizations use leases primarily because if they finances equipment it would be at higher interest rate and they would as lose money on the depreciation of the equipment which they would end up losing money. This saves the company from paying negative equity. Also another reason would be they would receive a lower interest rate on the leasing loan then on a bank loan where the interest is high and not much is being paid to principal. There are two major types of leases; finance lease and operating lease. Under a finance lease, the finance company owns the asset throughout and the agreement covers a set period – considered to be the full economic life of the asset. Often, there is an option to continue leasing at a reduced, or ‘peppercorn’ rate, at the end of the contracted period. As you are not the owner of the asset, you cannot sell the asset during the rental period. The finance company can claim the writing-down allowances and pass this benefit to you in...
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