Investments such as real estate, private equity or hedge funds have grown more common among not-for-profit healthcare borrowers and can tie up cash, but financial statements often do not reflect how much cash is so restricted and how much is more readily available, said John Nelson, a Moody’s managing director. Nelson said the recent credit and financial crisis prompted the agency to revise its liquidity measures.
Credit market upheaval and investment losses during 2008 and early last year drained cash from not-for-profit hospital and health system balance sheets.
Some had deals to hedge interest rates that required borrowers to post millions in collateral, further squeezing cash reserves. Other healthcare borrowers held bonds sold to short-term investors that could demand short-term repayment on a week’s or month’s notice, another potential threat to cash.
Initially, the ratings agency will include four new liquidity ratios. Moody’s will now measure cash available within one month and how long the hospital could operate using those funds, or monthly days cash on hand. Analysts will also calculate the ratio of monthly liquidity to demand debt, or debt that must be repaid should investors choose to exit, such as variable-rate demand bonds or commercial paper. The same two measures will also be calculated for one year.
Nelson said one-third of the more than 500 not-for-profit hospitals and health systems rated by Moody’s have completed the agency’s expanded liquidity disclosure form. New ratios, as with all financial measures, will be used when relevant, he said.
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