Healthcare players seeking debt stayed away from the market in 2013, borrowing a relatively meager $27.9 billion through bond offerings last year, according to a report issued by HFA Partners. That's approximately $10 billion less than they borrowed in 2012, a decline of more than 25 percent. Only the utilities sector saw a larger drop in borrowing on a percentage-wise basis.
"Rather than borrowing to fund capital projects, many hospitals chose instead to pay down existing debt or build cash on hand," the HFA Partners report concluded. It was the second slowest year for borrowings in the healthcare sector in a decade, according to HFA.
Moody's Investors Service considers the fiscal outlook for not-for-profit hospitals to be fairly bleak. Late last year, Moody's issued a negative outlook for that sector for the sixth year in a row. It projected a decline in revenue growth, connected to market disruptions as part of the rollout of the Affordable Care Act.
Those hospitals that did take on debt risked a downgrade and higher credit expenses. The credit rating of St. Joseph's Hospital Health Center in upstate New York was lowered not long after it announced it was borrowing $70 million to upgrade its health information technology system, according to the Syracuse Post-Standard. The downgrade from Moody's Investors Service came despite the fact that hospital officials said they expected to pay back the borrowings within four years.
While borrowing was on the wane, direct placements with banks were on the rise. Such placements accounted for $19.1 billion, about 60 percent of the entire dollar amount placed. HFA Partners had projected only $15 billion worth of placements with banks.
HFA does not expect prospects to brighten in 2014, particularly given a projected rise in interest rates as the Federal Reserve winds down its quantitative easing policy, making cheap cash widely available.