Trinity Health on Wednesday became the latest provider organization to announce a bond issuance in what analysts describe as a flood of health systems coming to market since October.
"It's been an extremely aggressive market," said Kevin Holloran, a senior director at Fitch Ratings. "Certainly there seems to be a push to get in prior to year-end."
Organizations are trying to lock in the current historically low taxable and tax-exempt interest rates. They're also turning to taxable debt now that most tax-exempt advance refundings, a popular refinancing technique, aren't allowed.
Livonia, Mich.-based Trinity's offering stands out for its sheer size: up to $1.4 billion in taxable debt and up to $300 million in tax-exempt bonds to fund capital projects. Trinity spokeswoman Eve Pidgeon wrote in an email that this is the time of year the health system usually accesses the market.
"The size of the taxable issuance is driven by the historically low level of rates," she said.
Kaiser Permanente seemed to kick off the action in October with its $1 billion taxable issuance, Holloran said. Since then, health systems of all sizes have announced their own offerings, including Cleveland Clinic, Memorial Hermann, Advocate Aurora Health, RWJ Barnabas Health, Adventist Health and New York-Presbyterian. Back in August, CommonSpirit Health sold $6.46 billion worth of tax-exempt and taxable debt, most of that restructuring existing debt previously issued by the two systems that formed Chicago-based CommonSpirit, Catholic Health Initiatives and Dignity Health.
A few years ago, systems would have tried to stagger their issuances so they didn't overshadow one another and had enough time to market the debt to potential investors.
"It's like five people trying to get through a door at once," Holloran said.
That's not necessary in today's market, in which demand for debt is high and the concern about finding buyers is low, if it exists at all.
"The new saying is, 'There's a sale on debt,' " Holloran said. "Everybody is trying to get some bonds."
Ken Gacka, senior director and analytical manager for S&P Global Ratings, said there's no particular benefit in getting bonds issued before the end of the year, but interest rates can and do change regularly.
"I think many organizations want to get in while rates are attractive in the event they were to change," he said.
Gacka agreed the timing of the offerings is mostly tied to interest rates, but said in some cases the call dates for existing debt plays a role.
Analysts agreed the trend is likely to continue into early 2020. After that, it's tough to predict.
Taxable issuances have to be very large to compete with major corporations that are issuing billions of dollars in debt at a time, which limits which health systems can enter that market, said Dan Steingart, vice president and senior credit officer with Moody's Investors Service. Some health systems only have around $200 million in outstanding debt, and wouldn't necessarily want to refinance all of that at once. Generally, portfolio managers in the taxable market want deals to be over $250 million, he said.
"There's a lot of buyers that just won't look at a deal smaller than that because it just doesn't fit their mandate," Steingart said.
