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.
With still a quarter to go, 2016 volumes for fixed rate revenue bonds sold by hospitals in public offerings have already exceeded calendar 2015 volumes by 35% and are poised to set new records.
This year's frantic activity marks the third consecutive year of rising volumes following the record low issuance set in 2013. The jump in issuance is good news for municipal bond underwriters, many struggling to cope with additional oversight from the SEC and MSRB and fierce competition in the form of bank direct placements.
Much of the higher volumes are coming from large, highly-rated health providers, with "AA" category issuance through Q3 already 70% higher than 2015 calendar year. Lower-rated borrowers in the "BBB" category have also stepped up their borrowing efforts albeit at a more modest pace, up 35% from last year. In comparison, issuance in the "A" category has been relatively sedate.
The surge in volumes is due to more providers going to market with larger deals. Some providers expect that interest rates will rise over the next few months following the election, particularly if the Fed raises the target fed funds rate in December. Others have accumulated capital projects in need of funding and can no longer postpone going to the debt markets.