Health
Capital Group Warns of Fallout to Hospitals From The Subprime Mortgage Crisis
And Urges Hospitals To Immediately Reassess Existing Debt Structures And Capital Financing
Plans
Chicago, Illinois, January 25 –
James Unland, President of the Chicago-based Health Capital Group, urged hospitals’ top managements and boards to take
a hard look at their existing debt instruments, their obligations and their capital and
debt planning in light of recent capital market developments.
Problems with some major banks and bond insurers have already affected the hospital bond
markets and are expected to do so for some time to come, resulting in both debt pricing
and access to capital challenges for many hospitals.
Numerous hospitals have used one form or another of variable rate and/or
interim bond financing, including tax-exempt short and medium maturity paper of one kind
or another, often backed up by bank letters of credit, bond insurance or both. Bond insurance has also backed some longer term
hospital debt.
“The feds’ lowering of a key interest rate this week and moves by Congress and
the President are not going to remove some fundamental and very serious problems in the
financial sector, problems resulting from billions of dollars of essentially unsound home
mortgage loans that were then repackaged and sold as securities with inadequate due diligence by some key market
gatekeepers,” said Unland. “Some
people, including myself, believe that much of the federal government’s action is
more along the lines of ‘feel good’ political moves than truly corrective of the
underlying dysfunctions and could, in fact, backfire in the form of markedly higher
inflation down the road.”
He urged hospitals to involve their key board members and to step back and think about the
essence of what creates value, viability and stability in their important community
service businesses.
“My message to hospitals: be objective, seek a wide range of advice, and think longer
term. Don’t be afraid to consider more
conservative financing mechanisms such as fixed rate term debt even though exotic variable
rate instruments have been the rage,” added Unland. “The ability of hospitals to
budget dependably amidst what I believe to be strong medium and longer term inflationary
pressures is a benefit that needs to be taken into account both with respect to a hospital’s
existing capital structure and with respect to its future capital planning.”
Contact: James Unland
800-423-5157
Email: capitalexperts@yahoo.com
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