hospital revenue bond

Hospital revenue bond

A bond issued to finance construction of a hospital by a municipal or state agency.

Hospital Revenue Bond

A municipal bond used to construct or expand a hospital. The bond is secured by the revenue the hospital receives in the course of its operations; that is, the issuing municipality does not back the bond itself. Generally speaking, a hospital revenue bond is riskier than other municipal bonds because hospitals have no power to tax and many carry an unusual amount of bad debt as a result of patients being unable to pay for services.

hospital revenue bond

Tax-exempt debt issued by a city, county, state, or hospital authority with debt service guaranteed by hospital revenues. While the facility that the bond issue is used to finance may be leased or sold to the hospital, it is the financial strength of the hospital, not the issuer, that backs the debt. Hospital bonds are generally more risky than general obligation or water and sewer bonds because the hospital has no taxing power. See also 501(c)(3) bond.
Are hospital revenue bonds so risky that my portfolio and I will land in traction?

Before you buy a hospital revenue bond, you need to review carefully the financial and demographic characteristics of the issuing hospital and have some understanding of how it might be influenced by competition from other health care providers in its market. Although many hospitals represent reasonable credit risks, they are certainly not all alike, and the group should not be painted with a broad brush in the same manner that municipal bond investors sometimes paint other types of bonds (such as water and sewer revenue bonds or school district bonds). Many hospitals are struggling as a result of numerous factors, several of which are overbuilding of capacity relative to community needs, tightening reimbursement policies on the part of Medicare and other insurers, rising costs as hospitals are forced to update equipment to keep up with leaps in health care technology, and growing competition, including that from nonmedical facilities. Of course, these industry problems have been compounded by cuts in federal aid to states and municipalities. Although these problems are greater for the nonprofit hospitals, the for-profit hospitals are clearly not immune to them. In reviewing a hospital to determine its relative creditworthiness, financial analysts focus on institutional characteristics and market position, management factors, medical staff characteristics, financial indicators, and legal covenants. Because of the greater risks often associated with hospital revenue bonds, most bonds of this type are issued with some kind of credit enhancement, usually in the form of insurance, but sometimes via letter-of-credit facilities.

Stephanie G. Bigwood, CFP, ChFC, CSA, Assistant Vice President, Lombard Securities, Incorporated, Baltimore, MD
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References in periodicals archive ?
Colorado Health Facilities Authority (CO) Adventist Health System/Sunbelt Obligated Group) hospital revenue bonds series 2004B;
Johnson City Health & Educational Facilities Board (TN) (Mountain States Health Alliance) hospital revenue bonds series 2007A;
Fitch has also affirmed the 'AA-' rating on the approximately $215 million South Carolina Jobs - Economic Development Authority's hospital revenue bonds listed below.
Joseph County Hospital Authority (IN) (Memorial Health System) hospital revenue bonds series 2003 (1)(2);
54,765,000 Indiana Health Facility Financing Authority hospital revenue bonds, series 2004A (Deaconess Hospital Obligated Group); (1)
16,375,000 variable-rate hospital revenue bonds, series 2004 (1);
Fitch Ratings has assigned an underlying 'A' rating to the approximately $90 million Orange County Health Facilities Authority Hospital Revenue Bonds (Orlando Regional Healthcare System) series 2007A and to the approximately $60 million series 2007B.
6 million Vermont Educational and Health Buildings Financing Agency hospital revenue bonds (Fletcher Allen Health Care Project), series 2007.
Fitch currently has an underlying rating of 'BBB' with a Negative Outlook on Riddle's $41 million of outstanding hospital revenue bonds (for more information, please refer to Fitch's last report dated June 24, 2005).
160,000,000 Orange County, FL Health Facilities Authority hospital revenue bonds, series 2002 (Adventist Health System/Sunbelt Obligated Group);
3 million Valley Health System (VHS) hospital revenue bonds (refunding and improvements project), 1996 series A, and $48.

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