COVID Stabilization and Lines of Credit

4 minute
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Last Wednesday Federal Reserve Chairman Jerome Powell signaled that the central bank would begin to raise short-term interest rates in March. He also suggested that Fed actions over the course of this next year might be more aggressive (rates might move up faster) than was the case following the 2008 credit crisis. While communicating this tilt toward tightening, Powell noted there would be one more round of asset purchases (long bond buying) and seemed less declarative about any playbook the Fed might run in unwinding its $9 trillion balance sheet. So, it appears the primary inflation-fighting policy lever will be the Fed Funds rate and the questions will be how fast this rate moves up and how the long end of the market responds (do benchmark yield curves flatten, steepen, or remain about the same?).



1 Year

5 Year

10 Year

30 Year

Jan. 28 – Treasury





v. Jan. 14

+27 bps

+7 bps

+1 bp

-3 bps

Jan. 28 – MMD*





v. Jan. 14

+28 bps

+40 bps

+37 bps

+31 bps

Jan. 28– MMD/UST





v. Jan. 14





*Note: MMD assumes 5.00% coupon

SIFMA reset this week at 0.06%, which is approximately 57% of 1-Month LIBOR and represents a 2 basis point adjustment versus the January 12 reset.

COVID Stabilization and Lines of Credit

During the crisis stage of COVID, a primary financial management focus was assembling liquidity resources to offset the threat to operating cash flow from the unprecedented revenue dislocation. Lines of credit were a focal point, as were “general corporate purpose” borrowing strategies and assessments of how additional liquidity might be tapped inside long-term investment portfolios. All these efforts focused on the common goal of identifying mechanisms to create short-term resiliency and a bridge from crisis to stabilization.

Liquidity is still an essential consideration, but the decision-making context is adjusting in response to a realignment in what resiliency means. In a crisis, any distinction between short-term and long-term resource management is narrowed, if not eliminated; resiliency is surviving to the end of each day. Stabilization is the process by which the gap between short-term and long-term re-emerges and then incrementally widens, hopefully reaching a point of normalization where resiliency is once again the result of effective long-term resource management.

Lines of credit offer a useful example of shifting resource management. Heading into the pandemic, most not-for-profit healthcare organizations did not maintain a line of credit; a select few used them as part of working capital management and others as a backstop to self-liquidity debt programs. Once COVID hit and the bottom started to drop out of the revenue model, the race across corporate America—including not-for-profit healthcare—was to secure as much liquidity as possible. Lines of credit became an important part of this effort, with organizations of all shapes and sizes putting these facilities in place and with many organizations drawing on the facilities ahead of a specific need.

As the crisis moderates, the question for most organizations is whether to maintain these facilities. The very encouraging news is that while COVID still looms large, the line of credit decision today is grounded more in traditional corporate finance principles than crisis management. Answering the questions of whether to maintain a line and in what amount requires clarity on the 2022 purpose of such a facility, which might include:

  • Working capital management as a buffer that allows operating cash sizing to concentrate on “normal” liquidity funding flows rather than periodic outliers; the line is sized to address temporary spikes in working capital flows.
  • Capital investment management as a capital spending bridge to permanent financing; the line is sized to address capital spending up to some future financing date.
  • Asset management as a buffer against illiquidity within a long-term investment pool; the line is sized to offset a larger allocation to illiquid investments.
  • Risk management as a buffer against general organizational risk; the line is sized to offset potential cash flow variability or other forms of enterprise risk.

Each of these strategies is currently being used by different healthcare providers to make line of credit decisions, and they are resulting in different approaches to facility size and tenor. Many organizations look at this roster and conclude that a line is no longer needed; that it was purely for crisis management and can be put back into the toolkit to be taken out again only if the business model suffers another major setback (we head back into crisis).

There is no right or wrong line of credit answer. The important consideration is that the best practice for your organization will emerge through frameworks that support holistic resource management. Each of the strategies identified above is an example of using an external resource to help reposition internal resources (unrestricted cash and investments) to a more advantageous spot on the “hedge risk versus pursue return” continuum. The work needed right now is discerning what point on that continuum defines resiliency for your organization, and then identifying the tactical resource positioning initiatives on matters such as lines of credit that will get you where you need to be.

Crisis is about short-term resource management; stabilization is about the journey back to long-term resource management; and resiliency is always grounded in effective and responsive resource management.

In our last post, we noted an upcoming webinar on the LIBOR transition led by my colleagues Steve Sohn and Geoff Stenger. It was very informative conversation, and you can access a copy of it here.

Trending in Healthcare Treasury and Capital Markets is a biweekly blog providing updates on changes in the capital markets and insights on the implications of industry trends for Treasury operations, authored by Kaufman Hall Managing Director Eric Jordahl.

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.
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