420-D:8 Liquid Reserves. –
I. Each provider shall establish and maintain liquid reserves in an amount equal to or exceeding:
(a) The total of all principal and interest due during the next 12 months on account of any long-term financing of the provider or facility in qualifying assets, "qualified assets"; and in addition;
(b) Sixty days reserve for operating expenses held in qualified assets to be incurred during the following 12-month period.
II. A provider shall satisfy its liquid reserve obligation with qualified assets.
(a) Qualified assets are:
(1) Cash.
(2) Cash equivalents.
(3) Investment securities.
(4) Equity securities, including mutual funds.
(5) Lines of credit and letters of credit that meet the requirements of this paragraph. The line of credit or letter of credit shall be issued by a state or federally chartered financial institution approved by the department or whose long-term debt is rated in the top three long-term debt rating categories by either Moody's Investors Service, Standard and Poor's Corporation, or a recognized securities rating agency acceptable to the department. The line of credit or letter of credit shall obligate the financial institution to furnish credit to the provider.
(A) The terms of the line of credit or letter of credit shall at a minimum provide both of the following:
(i) The department's approval shall be obtained by the provider and communicated in writing to the financial institution before any modification.
(ii) The financial institution shall fund the letter of credit, or the provider shall draw on the line of credit, no later than 4 business days following written instructions from the department that, in the sole judgment of the department, funding of the provider's minimum liquid reserve is required.
(B) The provider shall provide written notice to the department at least 14 days before the expiration of the line of credit or letter of credit if the term has not been extended or renewed by that time. The notice shall describe the qualified assets the provider will use to satisfy the liquid reserve requirement when the line of credit or letter of credit expires.
(C) A provider may satisfy all or a portion of its liquid reserve requirement with the available and unused portion of a qualifying line of credit or letter of credit. For purposes of satisfying all or a portion of a provider's debt service reserve requirement described above, restricted assets that are segregated or held in a separate account or escrow as a debt service reserve under the terms of the provider's long-term debt instruments are qualified assets, subject to all of the following conditions:
(i) The assets are restricted by the debt instrument so that they may be used only to pay principal, interest, or operating expense reserves, whichever is applicable.
(ii) The provider furnishes to the department a copy of the agreement under which the restricted assets are held and certifies that it is a correct and complete copy. The provider, escrow holder, or other entity holding the assets must agree to provide to the department any information the department may request concerning the debt service reserve it holds.
(iii) The market value, or guaranteed value, if applicable, of the restricted assets, up to the amount the provider must hold as a debt reserve will be included as part of the provider's liquid reserve.
(iv) The restricted assets will not reduce or count towards the amount the provider must hold in its liquid reserve for operating expenses and the liquid reserve for operating expenses shall not count towards the long-term debt reserve.
(v) No qualified asset may be liened or encumbered by any secured or attaching creditor, except that a qualified asset may be encumbered by a long-term lender with a blanket lien on all assets as long as the qualified asset meets the requirements of this section.
(b) Sixty days net operating expenses shall be calculated by dividing the provider's cash operating expenses during the immediately preceding fiscal year by 365 and multiplying that quotient by 60.
(1) "Net operating expenses" includes all expenses except the following:
(A) The interest and credit enhancement expenses factored into the provider's calculation of its long-term debt reserve obligation.
(B) Depreciation or amortization expenses.
(C) Cash on hand.
(D) Extraordinary expenses that the department determines may be excluded by the provider. A provider shall apply in writing for a determination by the department and shall provide supporting documentation prepared in accordance with generally accepted accounting principles.
(2) A provider that has been in operation for less than 12 months shall calculate its net operating expenses by using its actual expenses for the months it has operated and, for the remaining months, the projected net operating expense amounts it submitted to the department as part of its application for a certificate of authority.