Bonds sold by hospitals to short-term investors carry more risk for many borrowers since the credit crisis, as noted in prior blog posts. This week offered another example of why that’s so.
Bank troubles for healthcare borrowers
This week offered another example of why that's so.
One major credit-rating agency, Moody's Investors Service, warned that five banks are at risk to see credit ratings dropped on guarantees for some letter-of-credit deals, including dozens of hospital and health system bonds.
Healthcare borrowers rely on letters of credit as insurance to attract investors in short-term markets. But when banks falter, investors may grow wary and demand higher interest rates from borrowers—or decline to invest altogether.
That can be risky for borrowers. Banks buy bonds when investors won't but demand higher interest rates and faster repayment. Hospitals or health systems forced to pay back bonds rapidly risk a significant drain on cash from their balance sheets.
Moody's said letter-of-credit deals that rely on its joint support method of rating are on a watch list for possible downgrade. Those deals involve the following banks: U.S. Bank National Association, Branch Banking & Trust Co., PNC Bank, Regions Bank and SunTrust Bank.
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