A new law signed by Congress last week may offer some fresh hope for hospitals attempting to regain their footing in the bond market. The law, which was primarily designed to help financially-struggling homeowners, also allows the Federal Home Loan Banks to back tax-exempt bonds with letters of credit.
These letters of credit enhance borrowers' credit with the strength of the banks' credit, as well as a promise to cover debt payments if the hospitals can't do so. Such letters should lower the interest rate hospitals must pay when they pay back bondholders. Home Loan Banks will apply their own standards for borrowers seeking lenders of credit, so hospitals will still need to have good credit ratings of their own.
The new law should impact hospitals across the U.S., as more than 60 percent of hospitals already have bonds outstanding. Until recently, hospitals have faced very difficult market conditions when they sought to issue bonds, with credit insurers doing little to bolster their position, as they too have had their ratings sapped by the banking industry's woes.
However, it's worth noting that this option is only available for new bond issues, which may prevent some hospitals from restructuring their debt. Also, the provision expires at the end of 2010, though letters of credit issued under it may be renewed later.
To learn more about the new law:
- read this Modern Healthcare piece (reg. req.)
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