Major California Health Systems Refinance Bonds To Avoid Interest Hikes
Kaiser Permanente, Sutter Health and Catholic Healthcare West -- Northern California's three largest hospital systems -- are refinancing a total of $2.3 billion in bonds to avoid escalating interest rates, the San Francisco Business Times reports.
Since April, Sutter has refinanced $417 million in bonds, while CHW has refinanced $615 million and Kaiser has refinanced $500 million. CHW also plans to put an additional $746 million in other variable-rate securities on the market in mid-May.
All three systems are looking to move out of a specialized form of financing known as auction-rate bonds, a market that has declined sharply following the collapse of the subprime mortgage arena.
Marilyn Cohen, president and fixed-income money manager at Envision Capital Management in Los Angeles, said that hospital systems are "trying to turn these bonds out as soon as they can" to avoid large increases in short-term interest rates.
California hospital systems that paid 2.5% interest on auction-rate bonds in 2007 paid up to 11% earlier this year, according to Steve Heaney, managing director and head of public finance for Stone & Youngberg.
Kaiser, Sutter and CHW have not disclosed what the interest increases cost them.
The interest rate increases could be especially severe for California hospitals using bonds to finance construction required for facilities to comply with state seismic safety laws, and the Business Times reports that smaller health facilities could face greater interest rate increases than larger facilities (Rauber, San Francisco Business Times, 5/19).