Auction Rate

Healthcare finance firms aren't sweating Wall Street crisis

Anne Zieger — Wed, 24 Sep 2008 05:42:19 -0400

In theory, the tsunami of financial problems that's hit Wall Street in recent weeks is enough to scare anyone, even in a business like healthcare that enjoys steady demand. But if a recent analysis by Modern Healthcare is any indication, healthcare finance types aren't sweating things. In fact, they're just waiting for the waters to calm a bit, it seems.

It's not that the supply of healthcare capital hasn't been affected at all, mind you. For example, when Lehman Brothers filed for Chapter 11 bankruptcy, and Merrill Lynch sold out to Bank of America, it definitely created ripples in healthcare investment and financing, as both Lehman and Merrill have large healthcare investment banking units--and they're also some of the top managers of tax-exempt healthcare bonds. Still, Lehman and Merrill's problems haven't slowed trading in variable rate bonds, a popular instrument for hospitals and health systems, as there are still plenty of underwriters out there who can pick up the slack.

Sure, hospitals continue to be worried about the interest rates on their bonds, which, in the case of auction-rate debt can hit the high double-digits. Hospital leaders interviewed by Modern Healthcare seem pretty confident things will settle down again in the markets. The million-dollar question is when, as hospital finance managers worry about the paper they're holding and struggle to determine what mix of debt they should carry.

In the meantime, even with the market meltdown proceeding, stronger health systems and hospitals are still getting financing, particularly if they want to acquire smaller hospitals, observers say. And private equity investors are likely to keep doing deals with hospitals and healths systems at full tilt. After all, healthcare is an asset-based business, which gives it more stable value than, say financial services, no?

To learn more about this trend:
- read this Modern Healthcare piece

ALSO NOTED: FL bill would require hospital price disclosure; Medical property firm investing in physician groups; and much more

Wed, 30 Apr 2008 06:59:50 -0400

> Florida is considering a bill that would require hospitals to provide pricing information for 150 of the most commonly-performed medical procedures. The information would be posted on a state web site. Article

> A medical property investment firm has formed a division focused on striking financial partnerships with medical groups across the country. Article

> Hospitals across the U.S. continue to flee the auction-rate bond market, including these Detroit-area facilities. Article

> Birmingham, AL-based Medical Properties Trust has completed the acquisition of 10 hospitals and wellness centers. Article

And Finally... Monkey see, monkey...gets eye surgery. Article

HIT M&A volume up, but vendors otherwise shaky

Wed, 16 Apr 2008 06:59:56 -0400

Despite recent turmoil in the financial markets, health IT M&A transactions have had a strong few months. During the first quarter of 2008, 57 HIT deals were announced, equal to the number of deals announced in Q1 2007, according to a study by Healthcare Growth Partners.

Not only did deal flow keep pace, valuations of companies involved actually grew.
The median revenue multiple in such deals made a big jump in Q1 2008, hitting 2.1x, as compared with 1.4x during the same quarter last year. Meanwhile, the median EBITDA multiple climbed too, rising to 14.2x compared with 13.4x for 2007. More than half of the deals were for less than $50 million, though a few--such as the Misys/Allscripts combination--were valued at over $100 million.

Such deals aren't necessarily a sign of industry health, however. In fact, some HIT vendors--particularly those supplying revenue management and operational systems--are facing serious cash-flow problems. Many of these vendors, whose business often requires high liquidity, are very reliant on the troubled auction-rate securities market, analysts say. Given such pressures, it seems likely that this sector is going to be the next within HIT to face a significant consolidation.

For more industry research on HIT consolidation:
- read this report (.pdf)
- read this article from InsideARM

Related Articles:
Healthcare M&A likely to keep pace in '08
Angel investors like health IT
New investment venture targets cost-cutting health IT

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

SEC gives guidance for facilities to bid on on own bonds

Wed, 19 Mar 2008 07:59:58 -0400

Times are hard when an institution needs to bid on their own outstanding bonds, but that's where things stand. For weeks, hospitals have been petitioning Congress for permission to do just that--without being suspected of manipulating the markets. They want this permission so that if no one else bids on their auction, they can do the bidding themselves, and avoid the "reset" that could result in interest rates as high as 20 percent. With help from Sen. Charles Schumer (D-NY), who approached the SEC to seek the agency's help, hospitals have gotten what they wanted.

In a letter issued this week, the SEC said that it would allow borrowers to bid on their own debt if they met several terms--including disclosing their bids before and after the auction, and making bids that only were contractually appropriate, permissible under federal securities law, state law or the rules of any self-regulatory organization. Now, the question is, how many hospitals will have to exercise this option? For their sake, let's hope it's only a few, but that may be far too optimistic.

To learn more about the bond repurchase mess:
- read this Modern Healthcare piece (reg. req.)
- read this article from The Boston Globe

Related Articles:
Painful cash crunch leaves few good options. Report
Auction-rate bond crisis bodes ill for non-profit providers. Report