The Handbook of Municipal Bonds

CHAPTER 52

Hospital Bond Analysis

Lynn Cavallaro Vice President Van Kampen Investments

 

 

 

Not-for-profit hospitals account for the greater part of the nearly 5,000 community hospitals located in the United States.⁷⁰³A growing number of these tax-exempt hospitals look to the municipal market to access capital. In 2006, Moody’s Investors Service reported they maintain ratings for 543 not-for-profit hospitals and health systems. Standard & Poor’s rates over 600 hospitals and health systems incorporating well more than 1,000 individual hospitals .⁷⁰⁴ In addition, numerous hospitals either unwilling or unable to obtain a credit rating raise capital through the municipal market each year. General acute care hospitals represented 8.5% of all municipal bond issuance during the year 2006, or $30.9 billion in over 500 separate bond issues. Over the near term, hospital bond issuance will be strong as long as hospitals can take advantage of low tax-exempt interest rates. In addition, hospitals will find it necessary to continue to invest in facility and service upgrades simply to stay competitive. Pressure to reduce medical errors is also driving the sector to replace aging facilities with state-of-the-art designs for efficiency and privacy. Recently updated guidelines for hospital design now recommend single-patient rooms for most new hospital construction.

Historically, hospitals have been one of the highest yielding municipal sectors, compensating investors for the risks of owning hospital ...