Treasury to engage in markets to reduce interest costs and provide liquidity to aid Pennsylvania hospitals
Harrisburg, PA - Pennsylvania Treasurer Joe Torsella today announced a bond purchasing program that seeks to provide financial relief to non-profit and public healthcare systems in Pennsylvania. This would help to provide liquidity to healthcare systems, while reducing the extreme borrowing costs they have recently incurred, caused by unusual market volatility.
“Healthcare providers in Pennsylvania should be focused on one thing: saving lives. In this time of crisis, we’re stepping up to invest prudently in the frontline operations that are working to save lives and get Pennsylvania through this crisis. It is essential that hospital resources go towards the urgent needs of treatment expenses and protective equipment, not excessive borrowing costs.”
Pennsylvania State Treasurer, Joe Torsella
Many hospitals use variable rate demand obligations (VRDO) as one means of financing operations. VRDOs are highly-rated and highly liquid investment instruments. With recent market disruptions however, interest rates hospitals have to pay have gone up sharply. From rates of less than 1 percent a few weeks ago, many hospitals paid rates as high as 7.28 percent last week, according to Bloomberg data. Although rates have begun to decline following passage of the CARES Act – which included a provision, supported by state treasurers, to help stabilize the municipal finance market – they have not fully normalized, and the market remains volatile.
“I want to thank our hospitals and health care workers who are tirelessly providing lifesaving care as all of us fight this pandemic. As we all do our part to slow the spread of this virus, the steps the Treasurer is taking will help to provide more liquidity that our health care system needs to purchase vital equipment and supplies during this crisis.”
Governor Tom Wolf
By participating in this market, Treasury is looking to stabilize the short-term borrowing cost of hospitals by capping the interest rate at no more than 2 percent, regardless of market volatility. This would provide a fair return to Treasury on its investment, provide savings to health care institutions, and help ensure liquidity in the future.
“This financial relief allows healthcare systems to maximize resources to better serve patients. I’m grateful to Treasurer Torsella for making this worthwhile investment, and helping to alleviate financial pressure on hospital systems across the state as we respond to this public health crisis.”
Kevin Mahoney, Chief Executive Officer of the University of Pennsylvania Health System
Treasurer Torsella will redirect certain existing investments in the Commonwealth’s Consolidated Cash Pool to enable the purchase of up to $240 million in VRDO’s of Pennsylvania hospitals. The purchases will be limited to no more than $50 million from any one issuer. The program will be evaluated after a period of 30 days. The program focuses on existing municipal bonds rated in the top three categories, by at least one of the nationally recognized ratings agencies.
In Pennsylvania, the eight largest non-profit healthcare systems make up nearly half of total hospital beds.
Last month, Ohio Treasurer Robert Sprague launched a similar program for Ohio hospitals.