Use of 501 c. 3 ‘conduit’ ownership and financing structures for tax‐exempt healthcare and higher education

The use of 501 c. 3 ‘conduit’ ownership and financing vehicles has emerged as an effective financing tool for the real estate needs of many tax‐exempt healthcare and higher education institutions. ‘conduit’ vehicles offer low‐cost, third‐party ownership and financing solutions to other not‐for‐profit 501 c. 3 healthcare and higher education institutions that do not wish to use their own debt to finance real estate assets or that wish to preserve working capital and bond debt capacity for activities that more directly support their core mission. When applied to specific types of property assets and properly structured and documented, these transactions can achieve both off‐balance sheet outcome under all applicable FASB accounting rules and ‘off‐credit treatment’ from the rating agencies reviewing these transactions. However, these balance sheet and rating agency outcomes are highly dependent on a number of considerations tied to the facts and circumstances of each specific transaction. The purpose of this summary is to describe the features and benefits of conduit transactions, along with their unique accompanying financial, accounting and rating agency issues.