While changes in healthcare delivery move ahead at a rapid clip, one segment of the industry has slowed to a crawl.
For the three months ended June 30, tax-exempt healthcare bond volume sank 67% to $2.8 billion, compared with $8.7 billion in the year-ago period, according to Securities Data Co., a Newark, N.J.-based financial research firm. A total of 92 new issues were sold, down from 214 in the April-to-June period last year.
Just 30 refundings were completed during the quarter, compared with 139 in the year-ago period.
For the six months ended June 30, tax-exempt healthcare bond volume plunged 44% to $8 billion from $14.3 billion in the year-ago period. A total of 246 bond issues were sold, compared with 379 during the first half of 1993.
"For strategic reasons, most people are not in a big rush to borrow money for new projects," said Lisa Vanderbeek, manager of the healthcare group at A.G. Edwards & Sons in St. Louis. She said many hospitals are waiting to see whether affiliations or mergers with other hospitals are completed before they spend money on new facilities. Meanwhile, many refinancings are on hold until hospitals take their new money projects off the back burner.
This year's rise in interest rates also has kept some issuers from selling more debt. The Hospital of the University of Pennsylvania in Philadelphia plans to raise $317 million for renovations, replacement projects and refundings, but the hospital won't sell the bonds until rates improve, said John P. Wynne Jr., the hospital's deputy executive director and chief financial officer.
The interest rate on a 20-year AAA healthcare deal rose to 6.25% on June 30 from 5.25% on Dec. 30, 1993, Ms. Vanderbeek said. Similarly, a 20-year A-rated issue that had an interest rate of 5.4% on Dec. 31, 1993 paid 6.35% on June 30. Rates remained on the high end during April, May and June, fluctuating some 25 basis points during the quarter, she said. A 25-basis-point change is equal to the difference between an interest rateof 6% and a rate of 6.25%.
The volume of insured issues also has declined from last year's level. For the quarter, 46 healthcare bond issues worth $1.6 billion carried insurance, compared with 87 issues totaling $4.9 billion in the year-ago period. For the first half of 1994, 109 issues with total principal of $4.1 billion were sold, down from 163 issues totaling $8.1 billion in the first half of 1993.
Since 1993 was a record year for tax-exempt municipal issues, investment bankers and bond counsels aren't surprised by the slowdown during the first half of 1994. Many don't expect healthcare bond activity to pick up until the fall.