Huebner of Commerce Bank said the regional bank has healthcare direct bond deals lined up into 2012. Bank officials began to focus on healthcare lending within the past three or four years because of the sector's performance during the economic downturn, he said. “It's one of the few sectors in the economy that's still growing,” he said.
Commerce Bank will invest in bonds worth $10 million to $25 million, he said, and it works with other banks to loan up to $50 million.
Huebner said the loans allow Commerce Bank to earn interest on significant deposits, and the bank may gain other business from hospitals following the bond deal. Borrowers, he said, benefit from fewer fees and less disclosure than municipal bonds require. “There is only one bondholder and that's me,” Huebner said. “They're dealing with one bank and one person.”
Direct bank deals have raised concerns among credit analysts who argue disclosure on the debt is limited and investors need more information.
Standard & Poor's said last week that limited municipal market disclosure rules do not include bonds sold directly to banks. The ratings agency said borrowers should tell their municipal bondholders about additional debt from direct bank bonds, even though they are not required to do so.
Outside of Cleveland, executives with Southwest General Health Center recently finalized financing plans to replace the 316-bed hospital's emergency room and expand intensive care.
Mary Ann Freas, Southwest General's CFO, said the hospital will seek long-term bonds with a fixed interest rate to avoid too much short-term debt.
The Middleburg Heights, Ohio, hospital approved a plan last week to borrow $40 million in the municipal markets rather than borrow directly from banks. The bond will partially finance the $60 million initial phase of the hospital's project.
Freas said favorable interest rates influenced the financing decision, as did the fact that Southwest General borrowed directly from a bank in 2010. Southwest General borrowed about $17 million directly from Fifth Third Bank in 2010, and the loan must be repaid or refinanced by November 2014. Freas said she is unwilling to take on more debt with the same terms.
The long-term bond sold in municipal markets will help diversify the hospital's debt portfolio.
Texas Health Resources entered the market before rates began to climb as last year ended. The Arlington-based system borrowed enough to finance projects into 2012 before more capital will be needed, said Ron Long, executive vice president and CFO.
That allowed the 13-hospital system to stay clear of debt markets this year, the first in many years.