The new barista at Starbucks may well be your former bond underwriter. As of the end of July, healthcare bond issuance is down 31% from the same period last year. After adjusting for inflation, this year may be the slowest on record of the last two decades.
Annualized issuance volume for 2014 stands at $20 billion, which is what hospitals borrowed back in 1986. That was the lowest volume of the last two decades.
Fewer hospitals are restructuring or refunding existing debt; most have already converted their debt into more conservative structures.
New money issuance isn’t doing much better as uncertainty about reimbursement, reform, volumes and the economy is causing hospitals to keep capital-intensive projects on the back burner, focusing instead on operations and revenue cycle.
Other municipal sectors are also debt-averse, with overall municipal bond issuance down 15% from the same period last year.
Interest rates can’t be blamed, as the Municipal Market Data (MMD) “AAA” index is still relatively close to its all-time low of two years ago.
Credit spreads –the premiums paid to investors on top of the MMD index– can’t be blamed either as they are currently favorable to hospitals after soaring during the financial crisis. The average credit spread differential between hospital rating categories is only about half a percentage point.
So far, there isn’t much pointing to hospitals going back to the bond markets over the next few months.