After a slow start, hospital tax exempt bond issuance picked up in the second quarter of 2017, but still lags behind 2016 record volumes. In a reversal from last year, AA borrowers are conspicuously absent from the borrowing scene.
Hospitals and health systems sold $11 billion of fixed rate tax-exempt bonds in the first six months of this year, approximately 25% less than in the first six months of 2016 (includes fixed-rate, tax-exempt revenue bonds sold by acute care hospitals in the public markets, excludes most private placements and remarketings).
This is not surprising considering 2016 was a record year with $34 billion in bonds sold in the public markets, twice as much as in 2015.
Some of the 2016 issuance spike was due to refundings encouraged by tax-exempt rates hitting record lows in July of that year, dipping below the 2% mark, unhindered by the June Fed rate hike.
30-year AAA tax exempt rates are still very favorable, currently hovering between 2.5% and 3.0%, well below their 7-year average of 3.5%.
AA category borrowers --the large health systems behind much of last year's records, along with refundings across all rating categories-- have avoided the bond markets this year, selling a relatively trivial $3 billion through June compared to $14 billion they sold in calendar 2016.
With the next Fed rate hike not anticipated until the end of the year and continued uncertainty around changes to the Affordable Care Act, we expect 2017 volumes to finish close to 2015 but nowhere near last year's record.