More hospitals and health systems ventured into the bond market in the second quarter compared with the first quarter, but most analysts still expect a slow year for tax-exempt financing.
Soft demand for healthcare paper didn't stop some providers, such as Minnesota's Fairview Hospital and Healthcare Services, which issued $180.3 million in debt to finance outpatient expansion projects at four of its eight hospitals and fund routine capital needs, such as replacing imaging machines. It paid about two percentage points more in interest than it did for debt issued two years ago.
Fairview went to market the same week as Mount Sinai-NYU Hospitals/Health System. Mount Sinai's $524.6 million represented the quarter's largest issues. Mount Sinai also enjoyed the distinction of having the first healthcare bond issue marketed via the Internet.
"I have the general philosophy that when you need the money for good projects, you go out and get it," says Fairview Chief Financial Officer James Fox. "If you try to get perfect timing, you may be sitting on the sidelines forever."
Sixty tax-exempt issues totaling $3.3 billion were made during the quarter ended June 30, compared with 56 issues totaling $2.5 billion in the first quarter. The second quarter's totals were down from 122 issues worth $4.5 billion in the year-ago quarter, according to Thomson Financial Securities Data, Newark, N.J.
Five taxable issues worth $247.4 million went to market in the second quarter, compared with five taxable issues totalling $98.7 million in the first quarter. Twelve issues worth $274.8 million were sold in the second quarter of 1999.
For the first six months, debt issuance was down nearly 66% from last year. There were 116 issues totaling $5.8 billion, compared with 233 issues worth $9.6 billion for the first half of 1999.
Richard Kolman, a managing director at Goldman Sachs & Co., which orchestrated the Mount Sinai issue, says he expects deals to be down about 25% for the year. "We don't expect a huge pickup," he says.
Bond insurance fell sharply during the second quarter, as insurers continued to reduce their healthcare exposure. Just 20% of deals and 29% of total healthcare tax-exempt debt were insured, compared with 32% of deals and 48% of debt in the first quarter.
Three of the five largest deals had no insurance, including Mount Sinai and Baptist Memorial Hospital, Memphis, Tenn.
Fairview, an A-rated system, also issued debt without insurance, a departure from its past practice. Fox says the cost of insurance from an AAA-rated carrier simply wasn't offset by the reduction in interest rates that would have resulted.