Armadale Capital Inc. Refinances $118 Million for Johnston Health Services Corporation

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FHA Insured Transaction Generates over $13.8 Million in Savings

Armadale Capital Inc. (New York, NY), a FHA multifamily mortgage lender specializing in healthcare finance, announced the closing of a $118 million FHA-insured loan modification refinancing for Johnston Health Services Corporation (“JHSC”) which operates a two campus health system located in Smithfield and Clayton, North Carolina. JHSC is a joint venture of Johnston Memorial Hospital Authority and University of North Carolina (UNC) Healthcare System, a hospital system based in Chapel Hill with eight hospitals throughout North Carolina. The transaction will save in excess of $13.8 million over the next twenty years, the present value of which exceeds $9.2 million. The FHA loan is insured under the U.S. Department of Housing and Urban Development (HUD) Section 242 Hospital Mortgage Insurance Program. The transaction closed on July 23, 2015 and also involves the issuance of GNMA mortgage backed securities, which are backed by the full faith and credit of the U.S. Government.

The original 2008 FHA loan financing, which built a new patient tower in Smithfield and a new outpatient facility in Clayton, carried an interest rate of 4.89% until maturity in 2035. Taking advantage of a favorable interest rate environment, JHSC was able to lower the rate to 3.38%, a decrease of over 1.50%. A five year loan was provided by First Citizens Bank to cover some of costs of the refinancing.

“The problems in Greece and China resulted in a temporary flight to treasuries (see CNBC article dated July 8th; http://www.cnbc.com/2015/07/08/us-treasury-yields-sink-on-china-greece-fears.html), resulting in a significant drop in rates for this federally insured transaction. We were able to take advantage of the brief window of opportunity in an interest rate environment that appears to be generally rising” said Stephen Pack, President of Armadale Capital Inc.

“We had a certain savings target we wanted to achieve, and we were able to move quickly when markets went in our favor. This was a complex refinancing involving a lot of moving parts, but the financing team led by Armadale Capital put us in a position to take advantage of this opportunity” said Eddie Klein, Chief Financial Officer for JHSC.

Armadale Capital has been working closely with JHSC for many years and closed the original 2008 financing and the 2013 Final Endorsement of the FHA loan.

“Steve has earned our trust and confidence. He clearly understands the business and is able to build and lead a team of professionals for our benefit. This mortgage refinancing, which also involved the defeasance and advance refunding of a series of tax-exempt bonds, was very complex and had little margin for error, which made Steve’s leadership and attention to detail so critical. He has made a direct impact on our financial strength. This refinancing will better position us to compete and pursue our mission,” added Mr. Klein.

Armadale Capital led the execution of the refinancing, serving as FHA mortgage lender, securing HUD’s approvals and structuring the transaction. Harris Beach PLLC, out of New York City, served as FHA mortgage lender counsel and GNMA lender counsel.

“This transaction directly improves our ability to provide healthcare to our community now and over the long term, and we are very appreciative of the efforts of HUD, First Citizens Bank and the North Carolina Local Government Commission in making this refinancing and its benefits a reality” said Chuck Elliott, Chief Executive Officer of JHSC. Added Bobby Parker, Chairman of the JHSC Board of Directors, “This refinancing is a winner for JHSC, Johnston Memorial Hospital Authority, UNC Healthcare System and most importantly, the residents of Johnston County.”

“We thoroughly examined our refinancing alternatives and decided FHA mortgage insurance continued to make the most sense for us. Fortunately, interest rates went in our favor and our management team and financing team were able to seize the opportunity. We are delighted with the results,” said Jeff Carver, JHSC Finance Committee Chair of the JHSC Board of Directors.

“This transaction also had the benefit of lowering the risk to the HUD hospital insured loan portfolio, which is important to the federal government,” added Mr. Pack, who has worked on FHA hospital financings for over twenty five years.

In addition to being an FHA multifamily lender, Armadale Capital Inc. is registered as a municipal advisor with the U.S. Securities and Exchange Commission and the Municipal Securities Rulemaking Board.

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