Live Webinar | Coronavirus
Learn from hospital leadership and revenue integrity experts how to quickly recover revenue for your organization during the COVID-19 pandemic, while simultaneously preparing for economic recovery.  During this unprecedented time, heal...
Save
Live Webinar | Coronavirus
The financial ramifications of the ongoing COVID-19 pandemic will be a core challenge for providers to overcome as they stabilize from the distribution of regular business operations. Navigating the shift back to doing elective procedures a...
Save
Live Webinar | Coronavirus
Relying on aggressive financial policies and collection tactics won't help your organization adapt to the "patient as payer" model, especially after the pandemic. Instead, you need a strategy that helps patients easily navigate the financia...
Save
Live Webinar | Coronavirus
On April 30, CMS distributed a second interim final rule with updates which can help healthcare providers respond to the public health threats as a result of the COVID-19 crisis. Experts from BKD, LLP will review the Interim Final Rule (IFR...
Save
On Demand Webinar | Overview | Coronavirus
As states loosen and lift their "shelter in place" orders and restrictions on hospital elective procedures, hospital volumes will begin to return. The question is: What will the recovery look like? Ensemble Partners and SSI Group have joine...
Save
News | Coronavirus

Coronavirus leaves hospital financing in flux

News | Coronavirus

Coronavirus leaves hospital financing in flux

  • The hospital long-term debt market is essentially frozen, say hospital advisers.
  • It is unknown when widespread hospital debt buying will resume.
  • Hospitals and debt buyers may approach a restarted market differently.

Roiling stock and bond markets have directly affected hospital financing efforts, even as those organizations face increasing financial effects from the coronavirus spread, say industry experts.

The U.S. spread of the coronavirus has caused record stock market plunges and broad sell offs of municipal bond funds. That has changed the views of both hospitals seeking debt financing and the buyers of such debt, but the extent of the effect is unclear.

For instance, Kevin Holloran, a senior director for Fitch Ratings, said the uncertainty has led to differing reactions by hospitals and health systems seeking long-term financing:

  • Some are plowing forward with their plans to seek long-term financing from the markets
  • Some hospitals have postponed planned debt offerings while they await more certainty
  • Some hospitals have expended the debt they are planning to seek, given lowering interest rates

“It’s definitely not frozen, in fact some people are going in for more,” Holloran said. “And even the ones that are delaying, which are not a large percentage, are going to defer, not cancel out.”

'Frozen' view

But hospital debt advisers say that market has completely “frozen” over the last one to two weeks.

“Up until two weeks ago, the market was phenomenal” for hospital debt refinancing and new project financing, said Philip Kaplan, a managing director for Hammond Hanlon Camp (also known as H2C). But since then, “our understanding is that most healthcare bond issues have been put on hold.”

That view was echoed by Eric Jordahl, managing director of the treasury and capital markets practice of Kaufman Hall.

“As of right now, the long-term debt markets are pretty much frozen,” Jordahl said about the last week-to-10-days.

The disconnect from their view and the rating agencies may stem from hospitals continuing to approach rating agencies for rating but after receiving rating deciding to place their sales on hold, Jordahl said.

The market turbulence’s secondary effects, Jordahl said, have in turn affected fixed-rate hospital debt, including:

  • Dislocation of the relationship between tax-exempt and taxable debt
  • Widened credit spreads between differently rated debt
  • Similar disruption has occurred in floating rate debt, he said.

How improvements may occur

No one interviewed for this article was willing to predict when the hospital debt market would stabilize.

Although Fitch does not formally track debt buyer sentiment, Holloran said it is possible that they will become more discerning, given investors’ general fear. Those changes could include:

  • Reducing the number of interested buyers
  • Reversing the trend of requiring little-to-no rating agency guidance on debt

Jordahl was hopeful that liquidity injections by the Federal Reserve into the money market may help “in the relatively near future.”

“We don’t really know when our markets are going to hit a point where ‘OK, we found a level, even if that level is pretty ugly, and transactions can start to get done,” Jordahl said.

One positive sign is that secondary market trading continues to occur, he said.

“But there are no primary issues that are getting done and relative value and risk pricing is just not well understood,” Jordahl said.

Kaplan expects investors to again show interest in hospital debt after they start buying U.S. Treasury bonds and then highly rated state and municipal debt.

“We don’t know when it will get better but we feel fairly certain that one of the first markets to get better will be the tax-exempt market, and investment-grade health systems will be one of the first investments to see improvement,” Kaplan said.

Kaplan urged not-for-profit health systems to take steps to protect themselves during the roiling market:

  • Consider rate locks for bond issues within the next six to 36 months
  • Review variable-rate demand bonds for exposure to puts
  • Monitor negative fixed-rate swap valuations
  • Evaluate liquidity covenants in debt agreements
  • Increase and utilize lines of credit
 

About the Author

Rich Daly, HFMA senior writer and editor,

is based in the Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Advertisements

Related Articles | Coronavirus

News | Coronavirus

ED volumes slowest to begin recovery after COVID-19, analysis finds

ED volumes are the biggest laggards in terms of hospital volume recovery from the coronavirus pandemic.

News | Coronavirus

HFMA recommended coronavirus resources

The coronavirus is affecting the healthcare industry in unprecedented ways, and HFMA wants to help you stay up to date on the latest news about the outbreak. Come back to this page regularly for coronavirus resources, selected specifically for healthcare finance professionals, including Medicare information on regulations and guidelines, COVID-19 test pricing, COVID-19 coding, telehealth billing FAQs and more.

News | Coronavirus

CMS's latest guidance for healthcare organizations on the new coronavirus

The HFMA editorial team will continuously post the latest announcements from the Centers for Medicare & Medicaid Services (CMS) related to the COVID-19 outbreak.

News | Coronavirus

As states anticipate Medicaid shortfalls, hospitals urge Congress to bolster commercial plan enrollment

Hospitals are emphasizing steps to boost commercial health plan enrollment over Medicaid enrollment.