auction-rate bonds

Crisis may change tax-exempt bond rating system

Wed, 09 Apr 2008 06:59:58 -0400

With public-finance markets in turmoil, and auction-rate bond interest rates spiking to unheard-of levels, officials are starting to pay attention to the way agencies evaluate bonds. Traditionally, there's been a big gulf between the tax-exempt, municipal bond market accessed by not-for-profit hospitals and the corporate bond market tapped by for-profits. The two have been rated and managed separately for a very long time. Now, some officials are suggesting that there should be a single global rating system that would spontaneously improve the ratings of most municipal bond insurers.

Generally speaking, it has been easier to get a high rating in the corporate bond market than it is in municipal bonds. To make things work on their side, not-for-profit issuers have been using bond insurers to get the AA rating they needed to attract investors. For a long time, that was OK, but when the subprime mess turned many financial markets upside down (when the bond insurers themselves started to go south), it wasn't any more. Through no fault of their own, hospital bond issue rates skyrocketed as bond insurers' own ratings fell. This led to calls for a new ratings system.

Now, the three major ratings agencies have begun to mull such changes. Moody's for example, plans to begin issuing globally-scaled ratings for tax-exempt bonds on an issuer's request. Fitch Ratings and Standard & Poor's, meanwhile, are hanging back a bit and considering their options. However, they're likely to face continuing pressure to make more adjustments, as the tax-exempt muni bond market is far from healed.

To learn more about this issue:
- read this Modern Healthcare piece (sub. req.)

Related Articles:
Auction-rate bond crisis bodes ill for non-profit providers. Bond report
CA hospitals allowed to restructure debt. Bond report
MA bond authorities make transactions easier. Bond report
IRS cracking down on post-issue bond proceed use. Report

CA hospitals allowed to restructure debt

Wed, 19 Mar 2008 07:59:57 -0400

A group of six California hospitals and health systems won much-needed approval to restructure or refinance outstanding debt turned into a ticking time bomb by the bond crisis. The move follows similar steps by Massachusetts bond authorities, who also are dealing with their share of hospital bond crises.

At an emergency meeting of the California Health Facilities Financing Authority, the board took steps to make refinancing easier for tax-exempt hospitals and systems ready to jump out of the gyrating bond market. One big winner was San Francisco-Catholic Healthcare West, a 39-hospital system that was able to refund up to $2.2 billion to restructure auction- or variable-rate debt. The board also approved refinancing for 417-bed Hoag Memorial Hospital of Newport Beach, $69 million for 264-bed Lucile Salter Packard Children's Hospital of Palo Alto, $314 million for four-hospital Scripps Health of San Diego, $665 million for 466-bed Stanford Hospitals and Clinics, and $625 million for 22-hospital system Sutter Health.

To learn more about the hospitals' refinancing:
- read this Modern Healthcare piece (reg. req.)

Related Articles:
Sutter bets approval for $1B bond issue. Report
MA bond authorities make transactions easier. Report
IRS cracking down on post-issue bond proceed use. Report

Painful cash crunch leaves few good options

Wed, 12 Mar 2008 07:59:59 -0400

Painful cash crunch leaves few good options

Wow, things are still painful out there. Even if your facility had auction-rate bonds outstanding, and managed to bail out of them successfully, you're not necessarily in the clear.

If you assumed that you could turn to other standard financing sources, such as revolving bank loans and asset-based lending, don't be so sure. Of late, banks are pulling out of revolving loans, and even asset-based lenders are getting a bit gun-shy, according to the financial press. And it's hard to say when things will loosen up.

Of course, this issue extends well beyond healthcare providers, but given the cash flow issues providers face--with health plans holding them hostage--it's a particularly nasty situation. That's especially true given that many hospitals, in particular, have massive capital projects planned, both on the facilities and IT side of things.

Of course, providers do have other financing options, such as factoring their receivables, but those come at what can be a pretty high price, and they can be complicated to administer. (Besides, if I were a factoring company, collecting from health plans would not be my favorite line of business.)

Given these pressures on liquidity, it's hardly surprising that many providers are beginning to demand patient co-pays and deductibles up front (see story, below). But asking for big up-front payments can lead to charges that you're squeezing out the poor--particularly if you're a non-profit--so you pay a price for this approach too.

The bottom line is that providers are going to be sweating bullets for a while as the banking industry recovers from the subprime lending catastrophe. In the meantime, managing your cash is going to be a one-day-at-a-time kind of thing. - Anne