Hospitals and other parts of the healthcare sector are putting their toes back into the borrowing waters once again, and like what they are feeling. The healthcare sector sold $18.9 billion in bonds during the first half of 2015, up 76 percent from $10.8 billion sold during the first half of 2014, according to HFA Partners.
Of that sum, $12.6 billion came from hospitals issuing bonds. That's up 215 percent from the $4 billion sold during the first half of last year. The median size of a bond deal also rose significantly, from $70 million to $126 million.
The news is a positive development for hospitals, which have seen mixed financial forecasts in recent months. While Moody's reported the healthcare sector as a whole saw more debt upgrades than downgrades in the fourth quarter of last year, Standard & Poor's has been bearish on its long-term forecast for not-for-profit facilities.
HFA Partners attributed much of the dealmaking to refinancing existing debt as opposed to taking on new obligations for the sake of capital improvements or expansions. "Hospitals continue to take advantage of low rates in spite of the (yields for municipal borrowings) being up 40 basis points since the beginning of the year," HFA said. Because refundings replace existing debt, they do not increase supply like new money deals do. This has helped keep hospital credit spreads low, which is good news for borrowers."
Becker's Hospital CFO reported that about 80 percent of the hospital bond market so far this year was made in either refinancings or the recombination of existing debt.
A report by Wells Fargo Securities on the first half of the year for the nonprofit hospital sector concluded that risk on the bonds remains underpriced, but that the S&P Municipal Bond Hospital Index continues to outperform the bond market by a significant pace. And while Wells Fargo thought that new bond reissuances would slow as interest rates rose, the potential causes for instability--such as adverse court decisions or Congressional action against the Affordable Care Act--are now negligible.