In the May 17 article "Fast Cash Handy for Those Hospital Fixer-Upper Projects", HFA Partners is asked by Modern Healthcare to discuss recent hospital bond issues and the state of the healthcare debt markets.
Three years after its adoption, some not-for-profit hospitals are still unfamiliar with the SEC's Municipal Advisor Rule that restricts the information broker-dealers can discuss with them. Today we review the rule and its exceptions, and discuss the steps needed to take advantage of the IRMA exemption.
When planning debt issuance, hospitals and other borrowers try to anticipate the direction of interest rates, but they should also pay attention to credit spreads. In the last several years, spreads have not only declined but also compressed, which has cut borrowing costs and made rating upgrades less valuable.
The Municipal Securities Rulemaking Board's latest attempt to regulate direct bank purchases and other private placements by requiring the same registration as public bond offerings, is getting a rare response from market participants: unanimous pushback.
The Securities and Exchange Commission is proposing to add certain financial obligations to the material events which municipal obligors must disclose under Rule 15c2-12. Although the SEC has yet to clarify what constitutes a financial obligation, its stated intent is to capture bank placements, where disclosure has been limited.
Hospitals staged a massive return to the debt markets in 2016 as public bond issuance jumped 87%, more than any other municipal sector. The increase affected all rating categories, including lower investment grade borrowers who had previously stayed on the sidelines.
Fitch Ratings reports that in 2016, the agency saw the highest number of public finance upgrades of the last 10 years, outnumbering downgrades more than 2:1. But in the not-for-profit hospital sector, the ratio of upgrades to downgrades was down from 2015 and continues to vary significantly between rating agencies.
Hospitals looking to pay off or refinance tax-exempt debt are finding out that while public offerings offer limited options, bank direct purchases and other forms of private placements are more conducive to early redemption. With an understanding of prepayment formulas and market practices, hospitals can reduce or even eliminate penalties and realize substantial cash savings along the way.
Described by one issuer as a monumental waste of resources, the Municipalities Continuing Disclosure Cooperation initiative is about to get much less cooperative. SEC officials said they've ended settlements with underwriters and issuers that voluntarily disclosed, and the Commission is now shifting its focus to those that didn't.
Tax-exempt rates have climbed steadily since July's historical lows, and the pace picked up after the presidential election. Some hospitals had to put refundings on hold, but others are speeding up plans to issue new money debt, and with the MMD now higher than Treasuries, taxable debt is looking more attractive.
Fueled by low interest rates and a flurry of refundings, hospitals returned to the municipal public debt markets en masse this year, ending the drought and setting the stage for new issuance records. Bond underwriters couldn't be happier.
The MSRB is pushing hard for more regulation of bank placements, but so far the SEC has not shown much interest and is not providing guidance on how unregulated loans could become regulated securities. It remains to be seen if the MSRB's latest move asking borrowers to voluntary disclose loans on EMMA will be more successful.
The Fed held rates unchanged at last week's FOMC meeting, noting economic growth was not quite there yet, but left the door open to a hike later this year. Fed watchers are debating what to expect for the next three months and for 2017, and predictive tools diverge on what the Fed will do.
The SEC recently announced settlements with 71 municipal issuers for continuing disclosure violations uncovered by the agency's MCDC initiative launched in 2014. Four healthcare providers were on the list and more are expected in the coming months.
Would your organization issue bonds due in a hundred years? That's what New York and Presbyterian Hospital and Cleveland Clinic did in the last 24 months. Locking in interest rates for the next century may be tempting to some, but ultra-long bonds could prove costly if called.
The MMD 30-year tax-exempt yield reached a new low of 1.93% on Wednesday as foreign investors chase yield and safety and the Fed weighs in on the Brexit fallout. Hospitals planning to sell bonds in the next year or two should understand the various options available for locking in today's rates.
Current municipal market rules do not require underwriters to disclose markups on bonds traded in the secondary market, but savvy hospitals can now go on EMMA to review trades and determine if their bonds priced on market, or if they left money on the table.
Since the Great Recession, not-for-profit hospitals have hoarded cash as evidenced by improving rating agency liquidity ratios. Faced with a growing list of capital projects and mediocre investment returns, CFOs are now wondering how much cash to keep on hand.
In an interview for The Advisory Board's Financial Leadership Council, HFA Partners discusses why hospital CFOs should pay attention to the qualitative elements of the rating processcan, and how organizations can build a culture of transparency with rating analysts.
The Municipal Market Data 30-year tax-exempt bond yield continues to break record lows and reached 2.22% last Friday as investors scramble to pull cash out of equities and into fixed income. For hospitals thinking about issuing debt, the rally is becoming increasingly hard to ignore.
The Municipal Market Data 30-year tax-exempt bond yield reached a new record low of 2.44% earlier this week, fueled by strong investor demand for safer assets and a dearth of supply as hospitals and other municipal borrowers refrain from taking on debt.
The SEC's latest attempt at improving disclosure in the municipal bond markets is not getting much love. Comments from issuers and market groups at a recent industry panel showed frustration as participants questioned the MCDC initiative's costs and effectiveness.
Bond markets gods are smiling upon not-for-profit hospitals right now. The tax-exempt MMD benchmark is near its all-time low, and when combined with compressed credit spreads, hospitals can lock in the lowest cost of funds on record.
In HFMA Healthcare Business News, HFA Partners comments on the preliminary not-for-profit hospital median report published by Moody's for FY2015. The report indicates an improvement in performance and less uncertainty about ACA.
For hospitals and other not-for-profit borrowers who depend on the debt markets, bank direct placements continue to be a popular alternative to public bond offerings. The MSRB took notice and is looking for ways to force more disclosure.