Not-for-profit hospitals returned to the bond markets with a vengeance in the first quarter of 2015. The feeding frenzy was fueled by refundings as more hospitals took advantage of low rates to cut their cost of funds, while new issuance remains muted.

According to the HFA database, hospitals sold $5.8 billion in fixed, rate tax-exempt bonds in the first quarter of 2015 compared to $1.4 billion in the same quarter last year.


These figures do not include variable rate bonds.

Total healthcare issuance –which includes variable rate and related sectors such as senior living– was also way up at $8 billion compared to $3.5 billion last year.

Granted, the bar was low as Q1 of 2014 was anemic1 by any standard.

In fact, 2014 ended up as the slowest year on record2 for hospital debt since 2001.

Twice as many deals came to market this quarter as they did last year.

The jump in issuance is driven by refundings as hospitals are taking advantage of low rates.

Last year, 80% of issuance was to finance new projects (aka “new money”), with only 20% refinancing existing debt.

This year, the opposite is true: only 27% of bonds sold were to fund new projects, the rest was refundings.

New money issuance is in line with last year as hospitals continued to shun new debt.

Bond issues have gotten larger as refundings tend to involve larger par amounts than new money.

The median hospital bond issue size year to date is $130 million this year, twice the $66 million seen last year.

Refundings replace existing debt in the markets, so net-net, supply does not go up as it does with new money debt.

As a result, yields do not get bid up as much and the impact on hospital spreads has been limited.

If rates stay low, more refundings could be coming down the pipe and this year could turn out to be the return to averages bond underwriters have been praying for.