Thanks to merger mania, new tax-exempt healthcare bond volume in 1996 soared to its highest level in three years.
A total of 406 bond issues worth $15.8 billion were sold last year, according to Securities Data Co., a Newark, N.J.-based financial services firm. That represents a 41% increase in dollar volume from 1995, when Securities Data recorded 346 tax-exempt healthcare issues worth $11.2 billion.
Even so, last year's bond volume remained well below that of 1993, a banner year for healthcare debt. In that year providers offered 782 bond issues representing $29 billion of debt.
"I don't think anyone is anxious to add to their debt burden during these unstable times," said Kathleen A. Costine, senior managing director at Bear, Stearns & Co., one of the top underwriters of municipal healthcare debt in the fourth quarter and year ended Dec. 31. "Much of our volume was a result of merger activity," she observed.
Last year's relatively stable interest-rate environment enabled merging hospitals to streamline their balance sheets by consolidating debt. Long-term interest rates fluctuated about 50 basis points during the year-from a low of 5.63% to a high of 6.12%, according to the Bond Buyer Revenue Bond Index. The index reflects the debt issuance costs that would be incurred by an A-rated institution.
Healthcare providers kept the bond market busy right through the final three months of 1996. Securities Data recorded 120 tax-exempt healthcare bond deals worth more than $4.5 billion in the October-to-December period (See charts). By comparison, there were 125 bond issues worth $3.9 billion in the year-ago quarter.
In a continuation of recent spending patterns, the bulk of healthcare providers' bond proceeds are paying for information systems and other "strategic assets," Costine said.
Some 265 bond issues in 1996 totaling $10.3 billion represented financings for "new money," rather than refundings and refinancings, Securities Data reported. Another 50 issues worth $2.2 billion combined new money with refunding needs.
Brown & Wood, the fourth quarter's top bond counsel, also ranked No. 1 for the year, serving as adviser on 22 deals worth close to $1.4 billion. Smith Barney, lead underwriter for the quarter, also booked more healthcare deals in 1996 than any other investment banking firm, backing 40 issues worth $3.2 billion.
As long as interest rates remain stable, Costine expects continued "judicious use" of tax-exempt debt as healthcare providers position themselves for increased competition.