Bond market changes present new challenges

Changes in the bond market have narrowed the options for hospital debt issuance, but many alternatives remain open. Three crucial changes have occurred this year:

• Expiration of the Build America Bonds program.
• The annual debt limit on bank-qual­ified bonds reverted from $30 million to $10 million.
• Bonds issued with a Federal Home Loan Bank credit no longer may be transacted on a tax-exempt basis.

So, how should hospitals navigate these waters? Tanya Hahn, a senior vice president with Lancaster Pollard, told Health Facilities Management's sister publication Hospitals & Health Networks that government-owned hospitals potentially could take advantage of taxing authority to fund capital projects.

"Expansion projects are things that voters can see the need for," she says.

Hahn says hospitals also should look into the possibility of a general-obligation pledge issued by a governmental sponsor, such as a county with a strong balance sheet.
Hospitals may consider the potential benefits of a Federal Home Loan Bank credit, even if the transaction must now be done on a taxable basis, Hahn adds.

If a hospital must do a debt transaction that is less than ideal, it should build in flexibility that allows it to refinance sooner than later. And hospitals proactively should manage expiring letters of credit, she says, to avoid unfavorable terms post-expiration.

Richard Clarke, president and CEO of the Healthcare Financial Management Association, says smaller hospitals with weak credit ratings may need to take out loans from community banks to finance capital needs. Another alternative is leasing arrangements for new equipment.