Healthcare borrowing likely unaffected by expected rate hike

Investors and healthcare organizations are bracing for an expected interest rate hike during the Federal Reserve’s policy meeting Dec. 15-16.

Even as pressure for a hike has mounted, the Fed has delayed action while keeping an eye on volatility in international markets. Federal Reserve Chairwoman Janet Yellen downplayed those concerns during a hearing of Congress’ Joint Economic Committee last week, where lawmakers expressed qualms about a rate increase. Yellen pointed to such economic indicators as price inflation and labor market data.

Last week’s Bureau of Labor Statistics jobs report showed the unemployment rate has held steady at 5%. Healthcare has been a leading job-growth sector, adding 470,000 positions this year.

Healthcare bankers say a modest increase in historically low interest rates shouldn’t raise alarms. Health systems are likely to continue their borrowing pace, which has grown significantly over 2014. They may speed up debt issuances for projects on the back burner, to borrow at the current lower rates, experts say.

If the Fed raises the prime rate, the initial interest rate increase is likely to be as small as quarter of a percentage point for short-term rates, gradually rising to 2.75% by late 2017.

Debt financing will still be more attractive than equity financing to fund capital projects, said Slava Girzhel, managing director at KeyBanc Capital Markets. But, he added, “we’ve probably peaked on the availability of debt capital.” At the same time though, he said, “we’re still above historical norms.”