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July 25, 2016 at 08:59 AM
(Bloomberg) — The $250 billion municipal hospital-bond market is proving immune to Donald Trump’s plan to eliminate the Affordable Care Act.
Sutter Health is among nonprofits tapping demand for the tax-free debt, with the California chain planning to sell $850 million in new securities this week. Health care bonds are beating the overall $3.7 trillion municipal market for a third straight year as the federal law expanding medical coverage to Americans improves business. Despite the Republican presidential nominee’s goal, the rally has been undaunted as investors hunt for yield while rates hold near record lows.
“There’s lots of demand with all of the money pouring in,” said Mike Quinn, a managing director at Chicago-based investment bank Ziegler, which underwrites bonds for hospitals. “This is a really great environment for health care borrowers to issue tax-exempt money.”
Related: Fading PPACA gains put drag on 16% hospital muni-bond rally
Borrowing costs have tumbled this year with money flooding into the securities amid turmoil in financial markets overseas, pushing the Bond Buyer’s 20-year index to as little as 2.8 percent this month, the lowest since the data began in 1961. Debt issued for hospitals has returned 4.8 percent this year, outpacing the 4.1 percent gain for the market overall, according to Standard & Poor’s indexes.
Much of the financial gains from President Barack Obama’s overhaul have already emerged, with about 20 million people gaining coverage through private insurance plans or state Medicaid programs since the passage of the law in 2010. Hospitals are now facing the prospect of reduced reimbursements as the government aims to shift from a model where it pays for services to one where it rewards outcomes.
Republicans have repeatedly failed to repeal the law in Congress, and court challenges to its key provisions were turned away by the U.S. Supreme Court. While Trump has pledged to ask Congress to scrap it as soon as he takes office, doing so outright would be difficult politically given how many Americans are now covered by it, Morgan Stanley analysts said in a July 12 report.
For S&P Global Ratings and Moody’s Investors Service, which are both based in New York, U.S. hospitals will manage the risks without undermining their credit ratings. Both companies have stable outlooks on the sector, meaning downgrades and updates will be roughly equal.
“We’re about to enter a period with more uncertainty, but the organizations have very strong balance sheets and operations,” said Kevin Holloran, an analyst at S&P. “The health care system in America has proven over time to be very resilient and successful.”
Republicans have repeatedly failed to repeal the law in Congress, and court challenges to its key provisions were turned away by the U.S. Supreme Court. While Trump has proposed replacing the ACA with another experimental approach, outright repeal would be difficult politically given how many Americans are now covered by it, Morgan Stanley analysts said in a July 12 report.
After sitting on capital plans as implementation of the ACA started, hospitals ramped up borrowing last year to retire more costly debt, with sales this year already exceeding those in 2014 and 2013.
Sutter, which is issuing securities Tuesday through the California Health Facilities Financing Authority, is using the proceeds to refinance higher-cost debt and to help fund two new hospitals in San Francisco. Based in Sacramento, it runs 28 acute-care facilities, two recovery hospitals, four medical foundations and 15 home health care locations.
