Year-to-date hospital bond issuance is down 31% from 2020. While “AA” rated health systems have borrowed 30% more than last year, “A” and “BBB” category issuance is significantly lower.

In the first ten months of 2021, not for profit hospitals borrowed $13.6 billion, 31% less than the $19.8 billion borrowed during the same period in 2020.

Hospital debt issuance is lagging behind the rest of the municipal sector. According to Refinitiv, year-to-date issuance for other sectors is down, but only 6% from the same period last year.

Hospital borrowing activity is noticeably uneven across rating categories:

  • The “AA” category, which consists primarily of larger providers and historically represents a quarter of total rated issuance, picked up the pace and is up 30% from last year. Median issue size is $124 million, down slightly from $134 million in 2020.
  • The “A” category, which is historically half of total rated issuance, was down 53% from last year. Median issue size was $70 million, down from $99 million in 2020.
  • The “BBB” category, historically about a fifth of total rated issuance, was down 50% from last year. Median issue size was $65 million, roughly the same as last year.

Bond market conditions are generally favorable for hospitals across rating categories.

In June 2021, S&P upgraded its healthcare sector outlook to stable from negative.

Long term rates remain attractive. Both the tax exempt 30-year AAA General Obligation yield and the taxable 30-year Treasury yield are fluctuating close to historical lows.

In addition, hospital credit spreads are compressed, as tends to be the case when underlying rates are low.

For most hospitals, the resulting all-in borrowing rate of less than 3% makes for an attractive cost of funds, particularly given that faced with a low supply of hospital bonds, many bondholders are agreeing to more flexible terms.

Issuance is expected to pick up as the impact of the pandemic on operations fades away.