Tennessee health system hit by surging interest rate; other hospitals also likely affected

A Tennessee health system may have to pay millions of dollars more in annual debt payments due to an interest rate surge — a trend that will likely begin affecting other hospitals across the U.S., according to Bloomberg

As the economy slows due to the COVID-19 pandemic, more investors are hoarding cash or exiting the municipal bond market. This pattern of liquidating is delivering blows to local governments, hospitals and other nonprofits nationwide, according to the report. 

In one example, investors exited from the corner of the municipal-bond market where Methodist Le Bonheur Healthcare had raised cash.

As a result, as short-term yields surged, U.S. Bank raised the interest rate on $124 million of variable-rate bonds issued by Methodist to 5 percent, a hike more than double the initial rate. At the heightened interest rate, Methodist would be forced to pay $4 million more per year in annual debt payments.

Higher interest rates are not just hitting Methodist, according to the report. 

At least $34.6 billion of municipal bonds with yields that reset daily have seen their interest rates grow by at least 2 percentage points in the last two days, according to Bloomberg. In addition, an index of tax-exempt debt with variable interest rates reset to yield 5.2 percent on March 18. 

"There's a tremendous amount of fear and concern in the market right now, and I think that when you see that panic signal going off, it’s not a surprise that clients are rushing to cash," Kristian Lind, a senior portfolio manager for investment firm Neuberger Berman, told Bloomberg.

Read the full report here

More articles on healthcare finance: 
CommonSpirit suspends patient billing for COVID-19 testing, treatment
New York nonprofit hospitals have sued nearly 31,000 patients for unpaid bills
Global recession underway, economists say

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