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.

Mid-Year Market Review

For this email only, we’ve changed our market summary from a comparison of current rates against the prior email to a review of key indicators over various periods (last 30 years, pre-credit crisis, post-credit crisis, and pandemic). From every vantage point we are in uncharted territory: short-term and long-term interest rates are well below any measurement period averages; curves have steepened somewhat versus 2020 but the total spread remains below historical averages; and tax-exempt relative value has reached a profoundly different place, with low long ratios producing material pricing benefit.

This remains a mixed message environment: there is an unprecedented opportunity to lock in a long-duration, low-risk and low-cost capital structure; but eventually things will turn. Rates are seesawing with declines over the past few days based on moderating growth and inflation expectations. It is all about proximity to an undefined tipping point when the Federal Reserve will start to unwind their liquidity commitments. Applying our COVID crisis stages to Fed policy, we are still in the liquidity crisis phase; we will enter stabilization when the Fed begins to taper Quantitative Easing; and normalization seems like something that is both undefined today and a long way off.

Data chart

Mid-Year Rating Review

2020 and 2021 Rating Changes

The table shows upgrade-to-downgrade performance for the full year 2020 as well as 2021 year-to-date through June. While the expectation is that most actions will be affirmations, downgrades are likely to outpace upgrades again in 2021. In 2020 there was a cumulative 4.7x downgrade-to-upgrade ratio and so far in 2021 this ratio is running at 1.4x.

Some of the key observations made in agency commentary so far this year and that we will explore in more detail during next Tuesday’s conversation include:

  • Large, multi-state systems and systems with strong cash positions will be better positioned to manage through 2021
  • Hospital margins and cash flow are likely to be pressured by payer mix shifts, uneven volumes, increased COVID-19 expenses, and continued industry headwinds exacerbated by COVID-19, including the effects of workforce shortages
  • While most rating actions are expected to be affirmations, downgrades are likely to outpace upgrades in 2021
  • The credit quality gap may continue to widen between stronger and weaker providers
  • Overall higher levels of absolute debt are expected, as temporary liquidity facilities remain on the balance sheet
  • M&A activity will increase as providers seek size and scale to achieve stability, and face more competition from new market entrants, innovators, and private equity
  • The recovery process will continue to be uneven and very regionalized
  • Credit quality will continue to be tested, particularly for organizations that have light balance sheets or are already struggling operationally


We live in an interesting time. There are massively favorable tailwinds available to healthcare organizations in their capacity as borrowers that simultaneously create profound headwinds in their capacity as investors. The credit environment appears relatively stable, but every healthcare operator confronts a multi-variable and mutating risk roster. The path to a sustainable “new normal” likely requires paring back the massive Federal Reserve and federal government liquidity injections that have supplied oxygen to credit and capital markets since the 2008 financial crisis. The dispersion of potential outcomes from here is quite wide, and there is a risk of being too passive or too aggressive in building your response. The best—and we would argue the only—path forward lies in frameworks that help your enterprise establish and then maintain integrated and fluid risk-resource management across your operating, financing, and investing activities.

Meet the Author

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.
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