While many hospitals are wondering what their access to credit will be in the New Year, experts say little will likely change compared to 2014.
“Financially stable, well run hospitals should have access to cost effective capital next year,” said Adam Buchanan, vice-president of sales and trading at Chicago-based Ziegler, a specialty banking firm focused on healthcare financing. “Most healthcare borrowers will have access to the capital markets, even the ones that have experienced challenges. They will pay a little more, but on a historically adjusted basis it’s still relatively inexpensive.”
And since there are a few differences in availability between local and national sources of capital, CFOs may be able to pick and choose where they can get the best rates.
“I toss and turn nightly as I will soon have to borrow some money.” Tweet
“We’ve seen that local investors have been very aggressive in their interest rates offers,” said Buchanan. “Despite the challenges associated with healthcare and insurance reform, it is still a viable business. That allows both local and national lenders to understand the situation and provide aggressive or low-interest rates to borrowers.”
Barring an unforeseen catastrophe, interest rates should stay low, possibly until after the 2016 elections. But rates will still cause some concern for the hospital CFO.
“I toss and turn nightly as I will soon have to borrow some money,” said Mark Bogen, senior vice president and CFO at South Nassau Communities Hospital in Oceanside, New York. “Do I raise capital through a taxable venue because I don’t have certificate-of-need projects ready to take the tax exempt route? If I wait until my CON projects are in place, will I lose the opportunity for savings since there is currently an 80 basis point difference between taxable and tax-exempt rates?”
A recent change is that lenders are ready to finance higher levels of “soft capital”. This means that hospitals have a greater ability to raise capital for things like software or the costs of implementing systems. These are needs that are not backed by collateral and only by the creditworthiness of the institution.
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“With the advent of electronic medical records, you are finding people who are willing to finance some of the critical clinical and information technology infrastructure,” said Bogen. “Before this change it was very difficult to get soft capital financing for more than a small part of a much larger borrowing. Now about 20 percent of annual capital budgets are tied to soft capital expenditures.”