Moody's Investors Services has announced that it plans to adopt a revised rating scale for municipal bonds that could raise healthcare credit ratings by an average of one notch. The agency plans to convert healthcare and education bonds to its new global ratings scale in November, a move that should affect more than 400 not-for-profit hospitals and health systems. Not only will higher ratings improve the perception of hospitals' health, they may even give beleaguered institutions with otherwise strong credit a new ability to borrow and make new capital investments.
The practice of treating corporate and muni bonds differently has deep historical roots. Since the early 1900s, Moody's has rated muni bonds separately from corporate bonds. However, the practice has brought sharp criticism from regulators, including Connecticut's attorney general. The Connecticut AG's office announced in July that it had filed a lawsuit alleging that not only Moody's, but also major ratings firms Fitch and Standard & Poor's, were issuing artificially low credit ratings for municipal bonds.
The new ratings approach isn't aimed at healthcare providers as such. What's really happening, in the broader picture, is that Moody's is changing its public finance ratings to make all credit ratings comparable for all of the entities whose debt it rates. Under its existing system, critics say, government bond issuers have been held to a higher standard than corporate bond issuers. That's meant that government entities who didn't have AAA credit had to pay for credit insurance--and we all know what happened when the credit insurers developed bad credit ratings themselves! Clearly, no one wants to go there again.
To learn more about the proposed change:
- read this Modern Healthcare article
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