Spurred by lower interest rates and a pent-up demand for capital, not-for-profit hospitals and health systems tapped the bond market in greater numbers last year, increasing tax-exempt healthcare bond volume by 47%.
After a lull in 2000, not-for-profits sold 383 tax-exempt issues worth almost $20.1 billion last year, up from 292 issues worth $13.7 billion in 2000, according to Thomson Financial Securities Data, based in Newark, N.J. In the fourth quarter, there were 133 issues totaling $7.6 billion, compared with 92 issues totaling $3.4 billion in the fourth quarter of 2000.
Hospitals and health systems were attracted by opportunities to refinance short-term debt at favorable rates and finance construction and renovation projects, said David Cyganowski, co-head of healthcare finance at Salomon Smith Barney. Unlike previous years, few organizations refinanced long-term debt because of tax rules that bar repeated refunding of long-term debt, Cyganowski said.
For the year, the largest seller of tax-exempt debt was St. Louis-based Ascension Health, which issued $583 billion worth, according to Thomson. It was followed by Cincinnati-based Catholic Healthcare Partners, with $414.9 million, and Sisters of Mercy Health System, St. Louis, with $378.3 million.
Last year's bond activity marked a change from the late 1990s, when record volumes of tax-exempt healthcare debt stemmed from large system mergers that afforded opportunities to restructure debt. Volume fell about two years ago as those newly formed health systems hit financial trouble that diverted their attention and spooked potential investors.
With more construction slated for 2002 and beyond, brisk bond activity is expected to continue. One good piece of news for not-for-profit issuers is that a downward slide of their credit quality appears to be ending, according to statements last week by ratings agencies Moody's Investors Service and Fitch.
Moody's lowered 55 credit ratings and upgraded 22 in 2001, compared with 56 downgrades and 12 upgrades in 2000. A turnaround was evident in the fourth quarter, when the number of downgrades matched the number of upgrades at seven apiece.