But it was Lisa Goldstein, senior vice president and healthcare team leader for Moodys Investors Service, who was perhaps most blunt as she urged for greater disclosure of finances and operations from not-for-profit healthcare borrowers.
Poor disclosure is a function of poor management, she said.
Poor management is a reflection of poor governance, she continued.
Credit markets remain tight and more expensive for most healthcare borrowers. Youve heard cash is king? Goldstein said. Well, now cash and credit are king. Those that fail to provide timely and adequate information risk alienating investors, she said. Investors can no longer rely on insurance to lend a strong credit rating to tax-exempt bonds. Insurers credit strength crumbled last year thanks to their exposure to risky mortgages. And individualsor retail investors, a growing presence in the marketlack the expertise and resources of tax-exempt mutual funds and must do their own research.
Meanwhile, analysts are pushing for more information from healthcare borrowers about how investments or lenders may tie up cash. Liquidity remains critical after late years volatility drained investment portfolios and pension plans or, in some cases, siphoned away cash for collateral against hedges on borrowers interest rates. (She also noted one mainstay for healthcare capital projects has temporarily falling victim to the poor economy: Philanthropy. Its very difficult for organizations to fund-raise in a financial crisis, she said.)
Moodys in April said cash from operations and investment losses were among four critical factors analysts would closely consider when evaluating credit ratings during the downturn. Cash buys time, Goldstein explained to board members.
The agency also cited as a critical risk factor bonds that allow investors walk away and leave banks holding the debt. Banks may then demand healthcare borrowers rapidly pay off the bonds. I implore you, Goldstein told directors and trustees, make sure you understand your debt structure.
Phoenix Childrens Hospital posted $80 million as collateral for an interest rate hedge on 2007 bonds, but the governing board had prepared for such an unlikely event by paying a fee to cap collateral, said Robert Meyer, the hospitals president and chief executive officer. The hospitals directors met three times with bankers and outside financial advisors before issuing the bonds, he said.
David Cavazos, who became the hospital board chairman in March, said the board has continued to make strategic decisions as the credit crunch and economic downturn have unfolded. Six months ago, directors requested copies of any documents released to borrowers be added to financial disclosure already received by the board each week, month or in meetings every other month. Directors agreed to scale back construction on its 12-story expansion, he said. The board also opted to continue to adjust its investment portfolio to maintain the ratio of equities to cash of 60% to 40%.
Cavazos, the deputy city manager for the city of Phoenix, said recent extraordinary eventssuch as collateral demands on healthcare borrowershighlight the need for boards to understand the financial consequences of even the most remote risks. Dont count on conventional theory, he said.
Melanie Evans covers finance and governance news. She also covers healthcare business news in Connecticut, New Jersey, New York and Pennsylvania.
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