Tax-exempt healthcare borrowers, already struggling with fluctuating interest rates, could see further stress on budgets from the financial crisis that has significantly disrupted credit markets, according to a Moodys Investors Service report. Worsening economic conditions could also slow not-for-profit hospitals revenue as patients delay seeking care, insurance coverage declines and states cut funding for public insurers such as Medicaid. Wages and capital spending may suffer as a result.
Not-for-profit hospitals and health systems with so-called variable-rate demand bondscommonly sold to investors daily or weeklyhave struggled to find buyers in the current credit turmoil. Under such conditions, banks may be required to hold on to bonds and eventually, borrowers may be required to pay higher interest and have less time to pay off the debt, Moodys said.
Credit ratings could be affected if the crunch significantly affects borrowers payment ability or leads to greater long-term credit risks for a borrower compared with peers, the ratings agency said, though sweeping action is unlikely. Due to the indiscriminate and likely temporary nature of the credit market dislocation, however, Moodys does not anticipate taking widespread negative ratings actions across the public finance sector. -- by Melanie Evans