The Value of Variable Rates in a World of Low Rates

By: Jeffrey B. Sahrbeck
(HFM January 2015)

In February of 2008, the municipal industry (and specifically not-for-profit health care) found itself at the epicenter of the credit crisis, with auction bond failures, sizable investment losses, and derivatives causing massive collateral-posting requirements. As the industry scrambled to refinance hundreds of billions of dollars in debt and rebalance portfolios, the crisis caused health systems across the country to “de-risk” balance sheets in response. However, the pendulum swung so far toward fixed-rate debt that health systems are effectively betting on a rate increase, while losing billions in cash flow each year and not necessarily gaining the security they seek.

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