The trend was also felt across other sectors besides healthcare: only $295 billion of tax-exempt bonds were issued last year, 32% less than 2010. The majority of the decline was in “new money” issues, down 36%, while refundings were less affected, down 7%.
In healthcare, the culprits are hospitals postponing non-essential projects in the face of continued uncertainty about healthcare reform and the overall economy.
Rather than take on debt, hospitals are hoarding cash and paying down existing debt. In other words, they are being conservative.
But private placements are also blamed for low bond underwriting volumes, having quickly become the preferred funding vehicle for borrowers willing to go with shorter maturities.
Thomson Reuters says private placements totaled $8 billion across muni sectors in 2011, up 281% from the prior year.
The exact volume could be even higher as placements are hard to track (see our article The Pros and Cons of Bank Direct Placements in the October issue of HFMA Strategic Financial Planning).
So what’s in store for 2012?
More hospitals may return to the bond markets to catch up on depreciating bricks and mortar and take advantage of low interest rates, but it’s unclear how investors will react to increased supply and the impact on access to the markets and the cost of borrowing.
Meanwhile, some dubious hospital projects have been permanently abandoned, balance sheets are getting stronger, and rating medians continue to improve. Not great news for Wall Street, but hospitals may be better positioned when the dust settles on the future of healthcare reimbursement.
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