Bond buy-backs could stress hospitals' liquidity, Moody's says

As we've been reporting over the past several months, the bond market has been beyond ugly for many hospitals, some of which saw auction-rate bond rates shoot up disastrously during the recent crisis over bond-insurers' credit strength. However, that hasn't kept them from turning to the bond market to meet their capital needs, achieving this often by agreeing to buy back the debt if investors get antsy. While this strategy is churning up some cash, it could quickly become a problem if hospitals find themselves without the cash to keep their promise, warns Moody's Investors Service in a recent report.

To date, two dozen health systems rated by Moody's have issued a total of $8.4 billion on promise that they'll take back the debt if investors can't sell it. While the hospitals have managed to keep their promises so far, at some point hospitals may be caught up short when investors abruptly decide to dump short-term bonds or commercial paper, according to Moody's.

So far, hospitals involved have managed to buy back their debt when it was necessary, even in cases where they had only hours or days to come up with the money. However, so far only three systems have been forced to do so. Maybe things will stay this calm if more systems are forced into this position--but don't count on it.

To learn more about the bond buy-backs:
- read this Modern Healthcare piece (reg. req.)

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