Hospitals with low debt ratings expect to see their borrowing costs increase even more as cuts to Medicare and Medicaid funding loom, reports Bloomberg News.
The extra interest yield between top-rated 10-year hospital debt and that of BBB grade widened from less than two interest points at the start of the year to nearly 2.5 points as of last week, reports Bloomberg.
"There's a change in Medicare coming," said Tim Pynchon, who oversees $3 billion in municipal bonds for Pioneer Investment Management Inc. in Boston and specializes in high-yield instruments. "It's not enough to say it's a BBB hospital and I'm investing in it because it has yield."
Nonetheless, low-rated hospital systems are still going to market, with Community Memorial Health System attempting to raise $345 million through the city of Ventura, Calif., to build a replacement hospital in order to comply with state seismic laws. MaineGeneral Health--which receives more than half of its revenue from Medicare and Medicaid--will sell $290 million in debt via the Maine Health and Higher Educational Authority to build a 192-bed replacement facility in Augusta.