Hospitals race to secure big credit lifelines from Wall Street
Banks are being inundated with requests from hospitals for new lines of credit as they combat the spread of the coronavirus and see a steep drop in revenue because all but the most essential operations are postponed.
Both large hospitals like New York - Presbyterian Hospital, which is located in the epicenter of the outbreak, and smaller ones not on the front lines are arranging new facilities or drawing on those they’ve already secured to get quick access to cash. The broad push signals concern about whether they have enough to deal with the pandemic’s costs even after the federal stimulus extended about $100 billion of aid.
“We’ve never seen something where we’re simultaneously fighting a health care crisis at the same time that we’re fighting a financial crisis that’s directly affecting health care,” said Mike Allen, chief financial officer of OSF HealthCare System, which runs acute care centers in Illinois. His company is looking to increase its credit line from the $30 million it typically carries to as much as $250 million to contend with what could be a $330 million hit over the next six months.
The requests are adding to the pressure facing Wall Street as businesses across vast swaths of the American economy seek cash to weather the severe economic slowdown.
So far, hospitals have drawn down more than $1.3 billion from existing lines of credit, according to data compiled by Bloomberg. About $1 billion of new agreements have been secured and a growing number of hospitals have said in regulatory filings that they’re looking to arrange such credit lines.
“Banks are being overwhelmed -- it’s not just health care, it’s every major industry across the U.S.,” said Eric Jordahl, a managing director at health care advisory firm Kaufman Hall who works with not-for-profit hospitals and said “most” of them are waiting for lines of credit to be secured or tapped into. “The access is getting a little tighter, pricing is going up.”
Livonia, Michigan-based Trinity Health, which operates more than 90 hospitals, drew $885 million through four credit facilities, it said in an April 9 regulatory filing.
Ohio’s University Hospitals Health System said in a regulatory filing it’s looking for other lines of credit after withdrawing $250 million from one with Bank of America Corp. University Hospitals Chief Financial Officer Mike Szubski said the system wanted to “play it safe” and boost its cash position even though it hasn’t seen a surge in coronavirus cases. But it’s facing financial effects from the delay of elective procedures.
“The impact right now is significant, no question about it,” he said.
Hospitals are facing higher costs due to spending on equipment like masks, ventilators and medication while revenue has “fallen off a cliff,” said Wells Fargo Securities analyst George Huang.
Not-for-profit hospitals don’t typically use lines of credit, but they are changing course because that would give them an alternative to liquidating investments in the wake of this year’s sell-off, said Mike Mauldin, head of the health care specialized industry group at lender Regions Bank.
He said a substantial number of Regions Bank’s dozens of not-for-profit clients are looking to put in place credit lines or expand existing ones. The requests have ranged between $10 million and $250 million and are intended to act as a backstop over the next month or two, he said.
Southwest General Health Center, which serves a suburb of Cleveland, Ohio, drew on an existing $10 million credit agreement with Fifth Third Bancorp, according to a regulatory filing on April 8. Mary Ann Freas, the chief financial officer, said the hospital did so after the shutdown for its more lucrative elective procedures.
That’s “not unique to Southwest,” she said.
She said the hospital is looking to add a new credit line but declined to say how much it requested. Freas said the hospital will likely face “tightened” terms, such as a fee for withdrawing the money or for unused balances.
The rush for cash will likely pressure banks and create access issues for smaller entities that don’t have the same balance sheets as larger institutions.
Wells Fargo’s Huang said there’s only “so much” that banks can respond to given that push for cash is playing out across industries.
“It’s a cash, liquidity crunch that everyone is searching for right now,” he said.