Hospitals with lower credit ratings are finding they can borrow at rates once reserved only for higher rated hospitals thanks to a confluence of factors in the municipal bond market. A shortage of new hospital bond supply is combining with continued strong investor demand and the overall low-interest-rate environment to drive down borrowing costs, experts said.
“It's the same phenomenon that's driving interest rates in general,” said Pierre Bogacz, a managing director at HFA Partners. “Lower credits have benefitted disproportionately.”
Eager healthcare investors, such as mutual fund managers that have cash they must invest in the municipal bond market, are finding a lower supply of new issuances, said Bruce Deskin, also a managing director at HFA. “The investors are reaching for yield,” he said.
Instead of funding large-scale building projects, hospitals recently have been funding smaller information technology purchases, and often they are going to commercial banks rather than the bond market, limiting supply, he said.
Healthcare borrowing last year reached its lowest level in more than a decade.