Bond deals come to a halt as credit relief program nears an end
As credit relief end looms, deals come to a halt
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.