The Real Economy

Investors eye hospital revenue bonds in search of yield

June 25, 2019
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Economics Health care The Real Economy

Investors are eyeing higher-yield hospital revenue bonds amid bargain prices underscored by the 10-year U.S. Treasury, which is priced at its lowest level since 2017. However, health care systems have not yet stepped up to issue more debt to meet demand.

Several bond deals issued in the first few months of 2019 have seen significant over-subscription, signaling more demand than supply. The bonds bought are also offered in the secondary market, which has seen appreciation in their value.

So why haven’t health care systems issued more bonds? One possible reason could be that they are reevaluating construction activity typically funded by these types of debt instruments. Hospital systems are facing continued pressure to move service out of acute care hospitals into lower-cost settings such as outpatient clinics.

The chart below shows a slowing in hospital bond offerings so far in 2019.

KEY TAKEAWAY

If you are a middle market executive within a health care system considering going to the debt markets, you may want to move quickly as bond buyers are looking for places to put their money. Additionally, you could consider issuing debt for projects besides construction that you previously would have slated for other types of financing.

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