Fitch: Capital Structure Management: More Options for Health Care Borrowers.
In November 2005, the University of Pittsburgh Medical Center (UPMC) and its investment banker Goldman Sachs debuted an alternative tax-exempt variable-rate security called Extendible Municipal Bonds, or X-Tenders. Similar to variable-rate demand obligations, bonds in the X-Tender mode are issued with a long-term nominal maturity (up to 30 years) and an interest rate that is reset on a weekly basis. The X-Tender mode is unique in that the bonds are issued with a 13-month mandatory tender, which can be extended at the option of the bondholder on a monthly basis. Fitch's special report reviews the various characteristics of the X-Tenders relative to the more common variable-rate demand bond and auction-rate security structures.
Fitch believes the use of floating-rate debt by hospitals and health care systems will continue to grow over the long term as a result of more sophisticated asset/liability strategies and the growing acceptance of and comfort with interest-rate swaps by health care management and boards. Floating-rate structures provide health care borrowers a greater degree of flexibility in managing their capital needs due to their multimodal feature and flexible redemption provisions.
'The increased use of interest-rate swaps has provided issuers the ability to create synthetic fixed-rate obligations that offer more efficiencies than conventional fixed-rate debt,' said James LeBuhn, Senior Director for Fitch Ratings' U.S. Public Finance sector. 'However, as floating-rate debt makes up a larger portion of their overall capital structure, many health care borrowers have seen the need to diversify their variable-rate liability through the use of differing variable-rate structures.'
The new report 'Capital Structure Management: More Options for Health Care Borrowers' is available at www.fitchratings.com under the 'U.S. Public Finance' tab and 'Special Reports'.
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|Date:||Dec 21, 2005|
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