Health­care bor­row­ing likely un­af­fected by ex­pected rate hike

Modern Healthcare - - THE WEEK AHEAD - —Beth Kutscher

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.”

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