The numbers are in, and hospitals showed renewed signs of returning to the bond markets in 2012, but much of the activity was due to hospitals taking advantage of low rates to refund existing debt, rather than issuing new money debt for capital projects.
In A Nutshell…
- Healthcare municipal borrowing was up 25% in 2012
- The MMD benchmark tax-exempt index hit an all-time low of 2.47%
- Hospital credit spreads also came down significantly
- Refundings were behind much of the volumes as hospitals held back on new money issuance.
The final numbers are in, and 2012 is turning out to be a mixed bag for the healthcare debt markets.
On one hand, the trend that culminated with 2011 registering as the slowest healthcare bond issuance year of the last decade, appear to be reversing: 2012 saw a 25% increase in bond issuance as hospitals and other healthcare providers headed back closer to average bond volumes. Healthcare borrowers sold $33.5 billion in municipal bonds, compared to $26.8 billion in 2011.
On the other hand, much of the increased bond volumes in 2012 was due to refundings — hospitals are still holding back on funding new projects, at least with bonds. The growth of refundings is not surprising given that the benchmark 30-year “AAA” MMD index dipped to new all-time lows last November and credit spreads (the premiums charged by investors on top of an index to take on a hospital’s credit risk) also came down in 2012. Low rates plus + low credit spreads = low coupons, but uncertainty about the industry and the economy is keeping hospitals from borrowing more to fund new projects, low rates or not.
The pace of increased borrowing in healthcare continues to lag most other municipal sectors who saw much greater increases from 2011.
As age of plant ramps up across the country for many facility-based providers, we expect hospitals will stage a gradual return to new money in 2013 and beyond.
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