The threat to tax exemption, the presidential election and hospital acquisitions drove 2024 bond issuance by the California Health Facilities Financing Authority to its highest level since 2017. And 2025 is on track to exceed that volume.
"We noticed a jump in issuance before the election and in anticipation of the elimination of tax exemption," said Carolyn Aboubechara, executive director of the California Health Facilities Financing Authority.
2024 saw a large bump in volume, with issuance reaching $2.4 billion, Aboubechara said, but 2025 could exceed those figures.
CHFFA, a state treasurer's conduit, had issued $1.35 billion in 2025 as of Wednesday and it could add up to $1 billion more when it prices debt for Adventist Health System/West on Sept. 11. The CHFFA board approved the negotiated sale at its July 31 meeting.
The conduit also has another deal in the pipeline, but others are possible before year end, as hospital systems tend to notify the agency only a month or two before they make the request, Aboubechara said.
Adventist's upcoming negotiated deal could come in lower than $1 billion, as roughly $300 million of it is new money to pay for installation of an EPIC electronic health records platform and $700 million will be used to refund existing debt.
Whether Adventist moves ahead on the refunding of its Series 2012A and 2016A bonds, originally issued through CHFFA, and 2015A bonds issued through the California Statewide Communities Development Authority, depends on it achieving the net present value savings it is targeting, according to CHFFA's staff report.
Adventist didn't disclose how much savings it hopes to achieve, because an "estimate of net present value savings is uncertain due to market volatility," according to the staff report.
The healthcare system also plans to consolidate a portion of its outstanding commercial paper and revolving line of credit into long-term debt as part of the refunding, and that will likely move ahead.
"The markets have been volatile," said John Sheldon, state deputy treasurer of public finance. "I am guessing Adventist put refunding rates at such a level that they can achieve savings. We have seen all kinds of rate movements up and down."
Sheldon said he doesn't know what their targets are. "They are looking at a window in September when it will be favorable, but federal policy and
Big issuers like the state, or Adventist, which are both in the market regularly, can adjust the structure on new money tranches by adding maturities at parts of the curve where investors are interested, and removing them from parts of the curve where they are not, Sheldon said.
There is less flexibility with refundings to hit parts of the curve that are in higher demand, because the structure is crafted to match existing debt, Sheldon said.
CHFFA' hospital deals have seen solid demand, Aboubechara said.
"The bankers have been able to sell all the bonds," Aboubechara said. "I don't think there has been any situation where the underwriters had to take the debt themselves."
"In the seven years I have been here, all of our bonds have done well," California Treasurer Fiona Ma said. "I can only think of one where it was tenuous for them to sell on the planned date, after Trump got elected. It worked out well, but if it had gone out the next day it would have been a disaster. That was a state general obligation bond though, not CHFFA."
Even immediately before and after COVID-19, in 2020, the state continued its spring and fall slate of sales and did well, Ma said.
"Investors really like California bonds," Ma said. "We also let the market know ahead of time when we are coming to market. I think investors wait for our bonds, which helps as well."
Another trend this year has been underwriters positioning for a certain date and then accelerating if demand is strong, Sheldon said. For instance, he said, they might plan to have separate retail and institutional days but then pull institutional pricing into the same day as retail because demand is strong.
Adventist has helped drive the conduit's volume, because it has been issuing debt as it acquires hospitals – and it has acquired four in the past three years – for which they came to CHFFA for financing, Aboubechara said.
Lead manager RBC Capital Markets closed on $604.5 million in revenue bonds for Adventist on May 23, 2024, to fund an acquisition.
The bonds reimbursed a portion of a bridge loan used to acquire Sierra Vista Regional Medical Center and Twin Cities Community Hospital, both located in San Luis Obispo, according to bond offering documents.
The hospitals were acquired from Dallas-based Tenet Healthcare, which
San Diego-based Scripps Health expansion of its hospitals also helped boost volume in 2024. In January 2024, CHFFA issued $990 million in tax exempt revenue bonds for Scripps Health in three different deals. Of that about $770 million funded the expansion of two of its hospitals.
Even though the conduit reached its highest volume in several years at $2.4 billion in 2024, the debt it pushed out in 2016 and 2017 surpassed that level.
The conduit saw even greater volume when it sold $3.78 billion in 2016 and $4.1 billion in 2017. Issuance then fell to $688.8 million in 2018, averaged $1.5 billion annually from 2019 to 2022, and then dropped to $632.6 million in 2023.
"The issuance was high in 2016 and 2017, because borrowers were trying to get tax-exempt financings done, in particular advance refundings, before the Tax Cuts and Jobs Act of 2017 took effect," which eliminated the ability to do advance refundings, Aboubechara said. CHFFA also issued $2.1 billion in 2017 for Kaiser Permanente.
She also noted an alternate version of the TCJA that passed the House of Representatives in 2017 proposed the elimination of tax-exempt private-activity bonds, though PABs survived the final outcome while advance refundings did not.
