The following is reprinted with permission from HFA Partners.
Moody’s Investor Service announced yesterday it downgraded the credit ratings of 15 global lenders including Bank of America, Deutsche Bank and JPMorgan Chase. Read on to find out how hospitals with swaps or letters of credit from these institutions may be affected.
Long-term rating downgrades
Following the downgrades, some of the banks acting as swap counterparties may be required to post additional collateral. This will depend on credit support terms contained in the swap documents and, of course, assumes the swap value is in favor of the hospital. Also, if the hospital has a swap policy in place, it should be reviewed to ensure that the minimum counterparty ratings required in the policy are still met. If not, the policy may need to be revised. Note that for hospitals with swaps, the absence of a swap policy is generally considered a negative by rating agencies.
Short-term rating downgrades
Hospitals who still have letters of credit with Bank of America should be concerned. Since the bank's short-term rating is no longer in the "first tier" category, bonds backed by BoA LOCs are likely to be put back next Wednesday, the day of the week when seven-day variable rate demand obligations are remarketed. Smart CFOs either found a substitute bank or refinanced with a bank direct placement or bond offering.
HFA Partners is an independent financial advisory firm helping hospitals and healthcare providers lower the cost of debt and reduce balance sheet risk.
Moody’s Investor Service announced yesterday it downgraded the credit ratings of 15 global lenders including Bank of America, Deutsche Bank and JPMorgan Chase. Read on to find out how hospitals with swaps or letters of credit from these institutions may be affected.
Long-term rating downgrades
Following the downgrades, some of the banks acting as swap counterparties may be required to post additional collateral. This will depend on credit support terms contained in the swap documents and, of course, assumes the swap value is in favor of the hospital. Also, if the hospital has a swap policy in place, it should be reviewed to ensure that the minimum counterparty ratings required in the policy are still met. If not, the policy may need to be revised. Note that for hospitals with swaps, the absence of a swap policy is generally considered a negative by rating agencies.Short-term rating downgrades
Hospitals who still have letters of credit with Bank of America should be concerned. Since the bank's short-term rating is no longer in the "first tier" category, bonds backed by BoA LOCs are likely to be put back next Wednesday, the day of the week when seven-day variable rate demand obligations are remarketed. Smart CFOs either found a substitute bank or refinanced with a bank direct placement or bond offering.
HFA Partners is an independent financial advisory firm helping hospitals and healthcare providers lower the cost of debt and reduce balance sheet risk.
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