Few tax-exempt healthcare bond issues were as loaded with goodies as University of California, Davis Medical Center's $345.9 million behemoth in the quarter ended Sept. 30.
Bond proceeds will finance a 12-story patient tower, a four-story ambulatory-care center, a three-level parking garage, a new power plant and a radiology remodeling initiative. The medical center also earmarked $40 million of the proceeds to refinance completed projects.
Like UC-Davis, many hospitals quenched their thirst for project financing and refunding with tax-exempt bond sales in the past three months. Tax-exempt healthcare bond sales rose to the highest third-quarter level since 1993, buoyed by significant capital demands and favorable interest rates.
Bond volume jumped nearly 68% to $3.5 billion over 94 issues, compared with $2.1 billion over 76 issues in the comparable three months in 1995, according to Securities Data Co., a Newark, N.J.-based financial services firm. In the 1993 quarter, Securities Data recorded 192 tax-exempt healthcare deals worth $6.8 billion.
"New money" issues-those that don't involve refinancings-constituted 80% of total third-quarter bond sales, or $2.8 billion over 65 issues. In the year-ago period, new money deals represented 63% of total bond volume, or $1.3 billion over 50 issues.
After several years of project planning, chief financial officers are finally implementing financing decisions, said Will Douglas, senior vice president and manager of the healthcare finance group of George K. Baum & Co. in Denver. Many urban healthcare markets have experienced some consolidation, which has helped clarify hospitals' roles in the marketplace, he said.
Douglas cited one California-based hospital project that has been in the planning stages for three years and is finally ready to be financed. What started out as a complete hospital replacement has emerged as a scaled-back renovation and reconfiguration, he said.
Industry consolidation continues to fuel bond market activity. "We still see a fair amount of merger business occurring and transactions related to the buying and selling of facilities," said Darrel Flanel, a senior vice president with Lehman Brothers in New York. Lehman, the third quarter's top managing underwriter, booked six deals totaling $737.6 million, including the UC-Davis issue.
Interest rates, which remained low throughout the quarter, also enticed providers to the bond market. During the week of Sept. 30, an A-rated hospital could finance long-term tax-exempt debt at a rate of 6.25%. Twelve weeks earlier, the rate was 6.5%.
"We're certainly seeing a lot more institutions get to the point where refundings make sense," said Jeffrey Wymard, director of healthcare finance of the public finance group of First Union Capital Markets Corp.
In the third quarter, Securities Data recorded 19 refundings with principal amounts totaling $500.8 million and 10 issues worth $189 million that combined refundings with financings for new money.
"I actually think the next quarter will be pretty strong," Wymard predicted.