Enticed by lower interest rates, tax-exempt healthcare providers refinanced debt at a frenzied pace in 1993.
Healthcare bond refundings represented 66% of last year's total bond volume of $28.4 billion, according to Securities Data Corp., a Newark, N.J.-based financial services firm. By comparison, refundings represented 53% of 1992's total volume of $20.4 billion.
In the fourth quarter of 1993, the total volume of tax-exempt healthcare deals jumped 21% to $7.4 billion, representing 181 municipal healthcare bond issues, Securities Data said. That compares with 188 issues totaling $6.1 billion in the year-ago period.
For the year, healthcare bond volume swelled 39%, to a total of 735 issues worth $28.4 billion. In 1992, 634 issues worth $20.4 billion were offered to the municipal market.
Last year's refunding boom doesn't mean that refinancing opportunities have dried up, industry analysts said. "I think some providers have waited, and they have waited for a variety of reasons," said Rick Wright, a partner with Gilmore & Bell in Kansas City, Mo.
Many providers chose to "advance refund" their bonds in 1993 by issuing new debt and putting the proceeds in escrow to pay off the old bonds. But for some providers, the difference between the yield they would get by investing the proceeds in U.S. Treasury issues and the rate on the old bonds isn't enough to justify a refinancing, Mr. Wright said.
In addition, some issuers were kept out of the market because tax law limits the number of times an issue can be advance refunded, he said.
Bond counsels and underwriters said they expect to see more refinancings in the first half of 1994, provided that interest rates remain low. "People who have decided to wait and wait and wait are now moving into the market," said Jim Forbes, a vice president at CS First Boston Corp. in New York.
Mr. Forbes said he's seeing more "strategic capital" deals as hospitals seek financing to develop physician-hospital organizations and acquire physician practices and other hospitals. However, until more is known about the fate of healthcare reform legislation, hospitals will remain cautious about issuing new debt, he added.