Bond Covenants

Hospitals often seek independent valuations when preparing to raise capital for major projects such as expansions, renovations, or new service lines. These pivotal decisions must align with existing bond covenants, including debt service coverage requirements, additional indebtedness tests, and restrictions on asset transfers. A defensible valuation gives hospital leadership, trustees, and bondholders the confidence that new financing can be pursued responsibly and in full compliance with covenant obligations.

Why Valuation Matters in Bond Covenant Compliance

Bond covenants require hospitals to maintain specific financial ratios, protect asset values, and demonstrate the ability to support additional debt. A defensible valuation provides the foundation for these calculations, ensuring that debt service coverage, leverage, and liquidity metrics are based on accurate and supportable assumptions. Without this clarity, hospitals risk covenant breaches or delays in securing new financing

Common Capital Events Requiring Valuation:

• New construction and major renovations

• Service line expansions

• Mergers, affiliations, and joint ventures

• Physician practice acquisitions

• Asset sales or divestitures

• Debt restructuring or refinancin

Valuation as the Gateway to Raising New Capital

When hospitals pursue major projects—new towers, ED expansions, service line growth, or replacement facilities—lenders and bondholders require a clear demonstration of financial strength. Valuation validates the hospital’s asset base, projected cash flow, and the expected performance of new or expanded services. This documentation becomes essential for rating agencies, trustees, and boards evaluating whether the organization can responsibly take on additional capital.

What Makes a Valuation “Appropriate” for Bond Covenants and Capital Financing

Well‑supported valuation protects the hospital’s financial integrity, strengthens its credit position, and ensures that capital projects move forward with confidence. When the stakes include covenant compliance, rating agency review, and long‑term financial stability, independent valuation becomes an essential part of responsible governance.