Hospital Revenue
Candlefocus EditorHRBs are issued either directly by the hospital or with the help of an underwriter, who in turn issues bonds on their own. In the latter case, the underwriter becomes responsible for collecting revenue from the hospital and repaying the investors, which is where most of the risks lie. Those risks include the hospital not collecting enough revenue to cover costs, not collecting revenue at the rate assumed, revenue sources changing, and the investors being unable to recover their investments in case of default.
Besides the mentioned risks, HRBs can also be secured by mortgage debt, which can provide security to the investors in case of default. Bondholders may also receive additional protection via an indenture, a legal contract specifying all the obligations of all parties involved.
Hospitals who issue HRBs need to carefully plan for their investments and understand the risks involved. First, hospitals must be able to pay the interest rates and the full principal after the bond's term expires. Furthermore, institutions must analyze their revenue structure, examine the potential number of patients, and compare the current and future revenue streams to make product decisions.
HRBs are primarily used to finance construction of hospitals, medical centers, and other health-related facilities. They are also often used to upgrade and modernize existing hospitals, as well as purchase medical equipment. A variety of investors and institutions participate in hospital revenue bond issues, from banks and trust companies to insurance companies, pension funds, institutional investors, and private investors.
In summary, hospital revenue bonds are municipal bonds that finance construction of new and/or upgraded facilities for existing hospitals, backed by the hospitals' revenue streams. These bonds feature higher yields due to their higher default risk, and investors may receive further protection through mortgage debt and indentures. HRBs provide an appropriate option for hospitals to finance their projects, as long as they are aware of the considerable risks built into them.