Bond deals come to a halt as credit re­lief pro­gram nears an end

As credit re­lief end looms, deals come to a halt

Modern Healthcare - - Front Page - Melanie Evans

Hos­pi­tals and health sys­tems, un­able to se­cure rates to make re­fi­nanc­ing worth­while, have pulled bonds from the mar­ket in re­cent weeks. For months, hos­pi­tals that bor­rowed us­ing tax-ex­empt bonds had en­joyed in­ter­est rates so at­trac­tive that some re­fi­nanced old debt to cut costs. But in re­cent weeks, the mu­nic­i­pal mar­ket that fa­vored bor­row­ers has eroded. In­ter­est rates for sta­ble, long-term tax-ex­empt bonds—a fi­nanc­ing op­tion in­creas­ingly in fa­vor with health­care bor- row­ers af­ter the credit cri­sis—rose abruptly. Rates hit a 15-month high in mid-Novem­ber, said Pierre Bo­gacz, a man­ag­ing di­rec­tor for health­care fi­nan­cial ad­vis­ers HFA Part­ners.

As a re­sult, deals have been de­layed or can­celed.

Aurora Health Care with­drew more than half of the $380 mil­lion in bonds the Wis­con­sin sys­tem planned to re­fi­nance as rates be­gan to rise. The 12-hos­pi­tal sys­tem, based in Mil­wau­kee, is­sued $153 mil­lion of shorter-term bonds that earned lower in­ter­est rates.

The MetroHealth Sys­tem in Cleve­land scut­tled its plan to re­fi­nance $75 mil­lion and bor­row an­other $25 mil­lion. New Hanover Re­gional Med­i­cal Cen­ter, Wilm­ing­ton, N.C., can­celed its $96.5 mil­lion bond deal, as well.

Oth­ers with deals sched­uled to en­ter the mar­ket in com­ing weeks are now un­cer­tain. “We will be ready to go to mar­ket in the mid­dle of De­cem­ber,” said Vin­cent Capece Jr., pres­i­dent and CEO of Mid­dle­sex Hos­pi­tal in Mid­dle­town, Conn. “The ques­tion is: will it be worth it?”

Be­hind the rise in rates, said fi­nan­cial ad­vis­ers and an­a­lysts, are the Fed­eral Re­serve’s re­cent ef­forts to boost the econ­omy and the fastap­proach­ing end to the form of credit re­lief for mu­nic­i­pal bor­row­ers that was cre­ated dur­ing the re­ces­sion, known as Build Amer­ica Bonds (Nov. 15, p. 10). Also con­tribut­ing to the shift is un­cer­tainty over whether Congress will let tax cuts ex­pire as sched­uled in De­cem­ber.

“It’s more neg­a­tive than pos­i­tive,” said David John­son, man­ag­ing di­rec­tor and head of the health­care and higher ed­u­ca­tion group

Kel­ley called the mar­ket’s shift dis­ap­point­ing.

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