Hospital Bond Issuance Slowest Since 1986

HFA Partners  |  August 7, 2014

The new barista at Starbucks may well be your former bond underwriter. As of the end of July, healthcare bond issuance is down 31% from the same period last year. After adjusting for inflation, this year may be the slowest on record of the last two decades.


Annualized issuance volume for 2014 stands at $20 billion, which is what hospitals borrowed back in 1986. That was the lowest volume of the last two decades.

Fewer hospitals are restructuring or refunding existing debt; most have already converted their debt into more conservative structures.

issuance-volumes

New money issuance isn't doing much better as uncertainty about reimbursement, reform, volumes and the economy is causing hospitals to keep capital-intensive projects on the back burner, focusing instead on operations and revenue cycle.

Other municipal sectors are also debt-averse, with overall municipal bond issuance down 15% from the same period last year.

Interest rates can’t be blamed, as the Municipal Market Data (MMD) “AAA” index is still relatively close to its all-time low of two years ago.

mmd-jul-14

Credit spreads --the premiums paid to investors on top of the MMD index-- can't be blamed either as they are currently favorable to hospitals after soaring during the financial crisis. The average credit spread differential between hospital rating categories is only about half a percentage point.

credit-spreads-jul-14

So far, there isn’t much pointing to hospitals going back to the bond markets over the next few months.



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