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Notice Listing on Existing PHA Indebtedness
Notice Section 1.4.B.3 Existing PHA Indebtedness and Contractual Obligations
Documents on Existing PHA Indebtedness

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Questions on Existing PHA Indebtedness

PHA has a CFFP and/or EPC loan

If my PHA has a CFFP* and/or EPC loan, what do I need to do before submitting my application and what are the implications for applying for RAD if I have a CFFP loan? *Under the Capital Fund Financing Program (CFFP), a PHA may borrow private capital to make improvements and pledge, subject to the availability of appropriations, a portion of its future yaer annual Capital Funds to make debt service payments for either a bond or conventional bank loan transaction. An EPC loan is generally undertaken under 24 CFR 990.185, wherein energy conservation measures are financed by a third-party based on projected energy savings.

At the time of application, you will need to indicate how you plan to address the current obligation, e.g., by repaying the loan. Once you receive an award, you will then have six months to provide a Financing Plan that explains precisely how these obligations will be handled. As a result, you should have early conversations with your CFFP or EPC lender. Generally, debt service payments under the CFFP program cannot exceed 33% of a PHA’s annual Capital Fund award. For this reason, the CFFP program restricts PHAs from reducing their public housing inventory by more than 5% (any reduction in inventory affects a PHA’s Capital Fund formula grant). Under RAD, a PHA will be removing units from inventory and, therefore, eliminating the Capital Funds generated by that project’s formula characteristics. There are a number of possible solutions: • If the PHA has added public housing units to its stock since the CFFP loan closing, the PHA may be able to remove the RAD conversion units without exceeding the 5% rule. • It may be possible for the PHA to pay off the CFFP loan with proceeds from the RAD financing. • For larger PHAs, a change of 5% in the number of ACC units (and related capital funds) may be sufficient to cover the RAD project being considered for conversion. For example, if a PHA has 3,000 ACC units, it could convert a 150-unit project without tripping the 5% restriction. • Finally, PHAs may request an exemption from HUD to exceed either the 5% restriction or the limitation that not more than 33% of Capital Funds be used for debt service. PHAs will need to work directly with their lenders and investors to seek approval and make any needed changes in their respective documents. [See Final RAD Notice Reference: Paragraph 1.4, B-3]

Capital Fund Financing Program

My PHA is considering RAD but we have an existing Capital Fund Financing Program (CFFP) obligation. Can my PHA still apply for RAD?

Yes, any PHA with a CFFP obligation may apply for RAD. Some CFFP debt will not require any change in the structure or form of the CFFP obligation. In other instances, HUD will work with the PHA, following CHAP issuance, to attempt to develop a payment strategy to discharge either all or a portion of CFPP debt with eligible sources of pre-payment funds, which could include Capital Funds, Operating Funds, or funds proceeds from the RAD transaction, if structured appropriately. (Upated: 10/19/2012)

CFFP Loan, Partial Conversion

Since my PHA has a CFFP loan, I see that the PHA cannot reduce its PHA inventory by more than 5%, or in this PHA’s case, 60 units. At their priority development there are 12 buildings with a total of 97 units. The PHA would like to convert 51 units within only 6 of the buildings. The remaining 46 units would not be converted or otherwise improved at this time. Is this allowed?

You may be able to carry out a full conversion of the 97 units; please see existing Q&A WEB10082012_2_09100 regarding the 5% limitation. Assuming the CFFP lender agrees, no reasonable proposal to HUD to exempt the PHA from the 5% limitation (and the corresponding 33% of annual Capital Fund grant for debt service) will be denied. It is definitely permissible to convert a part of an AMP (provided there is a sound business reason and that it makes sense from financing/management perspective). Indicate in Section 2 of the Application the mix of units you intend to convert. Explain in Section 3 (Reduction in Unit Count) that you are proposing a partial conversion (see row 69). You may also need to make corrections to the three year historical information in Section 8 (Operating Expenses) because you are converting only part of the AMP.