LOS ANGELES — The rise in bond issuance from the healthcare industry this year is expected to continue in 2013, with healthcare bond volume totaling an estimated $34 billion, according to Bank of America Merrill Lynch.
"Given the likely continuation of historically low rates, availability of bonds eligible to be current refunded, and the need for investment in information technology and physician acquisition to position themselves for the requirements of the healthcare reform law, we expect that hospital borrowing will continue to increase," municipal strategists wrote in a recent outlook report.
After a slow start in the first quarter of 2012, healthcare bond issuance rose sharply, reaching $28.4 billion by Nov. 28. That amount is up an annualized 31.2% from the prior year.
Over the past ten years, healthcare bond issuance has averaged 9.95% of total municipal bond issuance, although since 2008, that percentage has trended downward, and most recently the percentage was at 8.95%.
For 2013, BofA Merrill Lynch is estimating somewhere between $34 billion and $37 billion in healthcare debt, but is leaning toward the smaller figure since the relative proportion of healthcare as a percentage of all issuance has been moderating.
"We suspect that this is the case because alternative modes of issuance, such as direct bank placements and taxable corporate style bonds, have been diverting deal flow from the more traditional tax-exempt healthcare bonds brought through conduit issuers, which is captured in these volume figures," analysts wrote.
They noted a new trend of direct lending from banks to healthcare institutions, estimating around $6 billion of direct placements in the year ahead.
Taxable debt issued by healthcare institutions has also been increasing and estimated supply for next year totals around $5 billion. Issuers may be more attracted to taxable debt because of the lack of restrictions and the ability to appeal to a new set of investors who do not need tax-exempt income.
Of the total healthcare bond issuance next year, BofA estimates that about $22 billion will be issued as refunding debt. This projection is based on the amount of healthcare refunding issuance in 2012, which made up 66.2% of total issuance up to December.