Coronavirus and Capital Markets: Financial Implications for Hospitals

In January 2020, we released our Capital Markets Update: Outlook for 2020. In that update, we noted that volatility in the capital markets had subsided over 2019 but might well return in the new year. Since then, the outbreak and spread of the new coronavirus, COVID-19, has quickly reintroduced volatility to the capital markets.

Immediate Impacts

When COVID-19 first began making headlines in late January, it seemed that the capital markets might be able to absorb the shock. As the virus spread, however, it began taking a significant toll on China’s economy, the second-largest in the world, and disrupting global supply chains as Chinese factories faced slowdowns or shutdowns.

Recent indications that the virus is extending its spread—with outbreaks reported in Japan, Iran, Italy, and South Korea—triggered a widespread sell-off in global equity markets and a retreat to safe havens. On Monday, February 24, yields on high-grade tax-exempt 30-year municipal bonds fell to 1.627%, 46% lower than in February of last year. Yields on the benchmark 10-year U.S. Treasury note set a record low on Tuesday, February 25, settling at 1.328%. In the tax-exempt market, the 10-Year MMD closed below 1% for the first time in history.

Longer-term Impacts

Following a series of rate cuts in 2019, the Federal Reserve had signaled its intention to hold firm at the lower rates. However, it has also indicated its willingness to step in if signs of significant economic weakening appear. For now, the Fed is taking a “too soon to tell” stance on further interventions.

With the Fed’s benchmark rate already at a historically low range of 1.5% - 1.75%, it has little room to maneuver. This may prompt the Fed to act early if clear signs of an economic contraction appear in the U.S. The impact of rate cuts might be mitigated, however, in a “supply shock” situation, where the issue is stalled delivery of goods from China, the world’s largest exporter, and its impact on commerce. A rate cut might be more effective in stimulating recovery after the threat of COVID-19 has passed, especially if the virus becomes a pandemic with a significant impact on economies worldwide.

How Hospitals Should Respond

Hospitals and health systems should not overreact to what may be a short-term disruption in the capital markets. At the same time, it is not too soon to begin positioning organizations for what may be a significant new risk.

In our January Capital Markets Update, we outlined actions hospitals and health stems should consider with respect to specific resource tiers. While the guidance we provided has not changed significantly, we believe hospitals and health systems should consider the following as they monitor the impact of the coronavirus outbreak:

  • Credit and debt capacity: With interest rates at historically low levels, hospitals and health systems should immediately evaluate refunding opportunities and consider borrowing opportunities. Also consider hedging strategies to take faster action to lock in funding rates for near-term or longer-term market access. In January, we noted that a continued low-rate environment presents opportunities for additional debt capacity, and as rates continue to move lower, those considerations remain in effect.
  • Cash and short-term investments: In the January update, we stressed the need to define a “thoughtful medium” between overinvestment and underinvestment of cash and short-term investments. Hospitals and health systems should evaluate short-term liquidity resources, including cash, short-term investments and short-term credit, to ensure sufficient liquidity to cover potential declines in income from invested assets associated with market volatility and other needs.
  • Invested assets: Organizations should maintain their focus on the long term but should consider enhanced comprehensive risk analytics for their portfolio.
  • Real estate and other non-liquid assets: To bolster liquidity, organizations should evaluate their portfolio of real estate, equipment, and even business units to identify non-core assets that they can divest and monetize. Sale and leaseback transactions are another option to bolster liquidity.

While this update has focused on the impacts of COVID-19 on the capital markets, hospitals and health systems should also consider modeling operational and financial risks to their organization if the virus becomes widespread in the U.S.

For more information, please contact Eric Jordahl ( or Robert Turner (

Meet the Authors

Eric Jordahl

Managing Director
Eric Jordahl directs Kaufman Hall’s Treasury and Capital Markets practice and focuses on helping healthcare organizations nationwide by providing Treasury-related transactional, strategic, and management support across all financial assets and liabilities.
Learn More About Eric

Robert Turner

Managing Director
Robert Turner is a Practice Leader in the Treasury and Capital Markets practice. He consults with healthcare clients nationwide, focusing on issues related to capital structure strategy, and the analysis and implementation of debt transactions.
Learn More About Robert