Down­grade may af­fect some more than oth­ers

Modern Healthcare - - Front Page - Me­lanie Evans

Hos­pi­tals watch, wait on in­ter­est rates

Not-for-profit health­care bonds es­caped the kind of abrupt and costly up­heaval seen in 2008 in the week that fol­lowed one ma­jor rat­ings agency’s down­grade of U.S. credit. The nation’s credit strength—no longer seen unan­i­mously as ster­ling, with Stan­dard & Poor’s break­ing from the other two ma­jor agen­cies to notch its rat­ing down to AA+ from AAA—has long been used to guar­an­tee debt for small and ru­ral hos­pi­tals. More re­cently, it has pro­vided back­ing for hos­pi­tal bonds with credit guar­an­tees from fal­ter­ing com­mer­cial banks. And hos­pi­tals that re­fi­nance bonds to take ad­van­tage of lower in­ter­est rates typ­i­cally buy U.S. Trea­suries when prior in­vestors must be paid back grad­u­ally.

But Stan­dard & Poor’s down­ward-re­vised view of U.S. credit, based on the agency’s “pes­simistic” view of po­lit­i­cal wran­gling that has mired fis­cal pol­i­cy­mak­ing, mat­tered lit­tle to most health­care bor­row­ers that rely on fed­eral credit guar­an­tees, said in­dus­try ex­ec­u­tives. Fu­ture bor­row­ers, how­ever, could see slightly higher in­ter­est rates be­cause of the coun­try’s split rat­ing, they said.

Nonethe­less, a few hos­pi­tals and health sys­tems could see in­ter­est rates creep up­ward im­me­di­ately. Most Fed­eral Home Loan Banks, which guar­an­tee a small num­ber of hos­pi­tal short-term bonds, also were down­graded to AA+ by Stan­dard & Poor’s.

In 2008, Congress tem­po­rar­ily al­lowed the Fed­eral Home Loan Banks to ex­tend ad­di­tional

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