Bank credit downgrades raise healthcare variable rate-bond costs
Reassess capital structure and seek stronger banks for LOCs and standby bond purchase agreements
As if the credit-rating collapse of the major bond insurers weren't enough ...Jul-20, 2009 The latest upward push on hospital capital costs comes from bank credit downgrades. In mid-June, Standard & Poor's cut the counterparty credit ratings and/or outlooks for 22 regional and national banks (S&P story in WSJ). Chances are downgrades will continue as bank market conditions remain bleak, S&P added. Healthcare organizations with variable-rate demand bonds backed by letters of credit (LOCs) or standby bond purchase agreements (SBPAs) from banks with slumping credit may face sharply higher interest rates to remarket the bonds as they come due. Some hospital ratings are threatened as a result (Standard & Poor's Indiana Finance Authority Marion General Hospital; Letter of Credit). Worst case, a remarketing failure could trigger an interest rate jump to 12 percent or more plus a drastically accelerated amortization schedule under bank buyback terms - or even a complete loss of bank credit backing (Standard & Poor's Illinois Finance Authority Northwestern Memorial Hospital; Hospital). The massive cash drain such events would trigger could prove the last straw for hospitals already stressed by recession-compressed operating margins and cash flow. |  Howard Larkin |