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SBPA-Backed VRDOs

Checkup On Not-For-Profit Health Care SBPA-Backed VRDOs in the COVID-19 Era

S&P Global Ratings currently rates 904 primary market variable-rate demand obligations (VRDOs) that are backed by standby bond purchase agreement (SBPA) obligations with a par total of approximately $69.8 billion. VRDOs are bonds with interest rates that reset periodically and may include a bondholder put option. The U.S. public finance (not-for-profit) acute health care sector currently has 86 SBPA obligations that represent about 10% (approximately $7 billion) of all SBPAs.

Key Takeaways

  • The U.S. public finance health care sector currently accounts for about $7 billion or 10% of the $69.8 billion VRDOs backed by SBPAs that we rate.

  • Our sector outlooks for all public finance sectors are now negative, and, as of July 31, we had negative rating outlooks on 26% of the stand-alone not-for-profit health care providers and 17% of the not-for-profit health care systems we rate.

  • Not-for-profit health care providers in the 'AA' rating category continue to have access to the SBPA market, though pricing has increased somewhat and tenors have shortened.

  • Although unlikely, remarketing failures and draws on SBPA providers could increase if bondholders elect to tender their bonds due to impact of the pandemic and investors' concerns about obligors' overall credit quality and the potential loss of put options if SBPAs terminate without notice.

At S&P Global Ratings we are continuously assessing the economic and credit impact of the COVID-19 pandemic around the world. Subscribe to our Coronavirus Bulletin today and we will ensure you have all our latest research and forecasts as they are published.

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Pressure on Pharma

How Business Strength Varies Across the Top Pharma Companies

The top branded pharmaceutical companies have strong investment-grade ratings based on an attractive and highly profitable business model, combined with conservative levels of adjusted net debt leverage and strong cash flow generation.

What Does Pharma’s Quest for a COVID-19 Vaccine Mean for its Credit Quality and ESG Profile?

The COVID-19 pandemic has placed much of the hope of returning back to normal on the pharmaceutical industry to develop effective treatments and vaccines. In S&P Global Ratings' opinion, innovation is the key to sustaining a successful pharmaceutical company.

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Executive Orders on Drug Pricing will have Limited Effect but Underscore the Continued Pressure on the Pharmaceutical Industry

President Trump announced last Friday that he is planning to sign four executive orders aimed at lowering pharmaceutical prices. However, S&P Ratings views the likelihood that any of these proposals will be implemented in the near term as low.

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Telehealth Boom

COVID-19 Pandemic Likely to Cause U.S. Telemedicine Boom

The response to the COVID-19 pandemic will accelerate growth in telemedicine and home internet of things healthcare revenue more broadly, as the U.S. government's response drives a nearly 31% CAGR in Kagan's recently released five-year forecast.

Revenue is expected to grow from $628.3 million in 2019 to $2.40 billion in 2024.

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Digital Health Player Biofourmis Secures $100M Investment led by Softbank

Biofourmis Inc., a privately held digital therapeutics company based in Boston, has completed a $100 million Series C funding round led by SoftBank Corp.

The round also included funding from existing investors EDB Investments Pte. Ltd., MassMutual Ventures LLC, Openspace Ventures Pte. Ltd. and Sequoia Capital Operations LLC.

CEO Kuldeep Singh Rajput, who co-founded Biofourmis in 2015, said the fresh funds will offer the opportunity to restructure the startup and introduce new verticals. The money will also be used to accelerate global expansion plans and advance its digital therapeutics pipeline.

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Vaccine Race

The ESG Pulse: The Search for a Vaccine

Not surprisingly, the bulk of ESG-related rating actions in June continued to stem from the COVID-19 pandemic, though there were a number related to governance factors. There have been some signs of business restoration in parts of the U.S., as well as in other countries that experienced a COVID surge earlier in the year and where the number of new cases is now tapering off. The sectors that are most exposed, in our view, remain leisure, hotels and restaurants, transportation, and governments, especially if there's a resurgence.

At the same time, vaccine developments could accelerate, with production already starting in some cases on the basis of governmental pre-orders, ahead of phase 3 testing results and regulatory approvals. Some experts believe that extensive clinical trial data could be put before regulators by the end of this year. It's estimated that it costs about $2 billion to bring a vaccine to market; GlaxoSmithKline said it had spent about that to develop the avian H5N1 flu vaccine, which it was able to make available in a little over 12 months. The U.S. recently announced a US$2 billion deal with Pfizer and German biotech firm BioNTech for 100 million doses. Other agreements are a $1.6 billion deal with Novavax for 100 million vaccines, or an even lower cost of $1.2 billion for 300 million vaccines with Astrazeneca in cooperation with Oxford University.

'Conceivable' Moderna COVID-19 Vaccine Data May Come Before U.S. Elections – Fauci

It is conceivable that data may be available from the first U.S. phase 3 efficacy trial of a COVID-19 vaccine before the November elections, giving President Donald Trump the October surprise some have speculated he is seeking, the nation's top infectious disease expert acknowledged.

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AstraZeneca, COVID-19 Vaccine Contenders Keep One Eye on Future Pandemics

With established manufacturers and new entrants racing to complete clinical trials of their experimental coronavirus vaccines in record time, some are already looking beyond their new-found COVID-19 expertise to better prepare for future pandemics.

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Supply & Insurance

Medical Supply Sourcing Slowdown Gives Impetus to Reshoring Strategy

U.S. medical supply sourcing of products critical for the fight against COVID-19 may be slowing.

Panjiva's U.S. seaborne shipping data shows that imports of personal protective equipment, known as PPE, ventilators and pharmaceuticals all fell in the first half of July compared to June on a daily average basis.

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Molina CEO Saw 18% Jump in '19 Pay; 6 Health Insurer Execs Earned More Than $15M

The top executives at seven publicly traded managed care insurers in the U.S. all saw their total compensation for 2019 rise on a yearly basis, with six of them earning more than $15 million each.

Joseph Zubretsky of Molina Healthcare Inc. was paid $18.0 million in total adjusted compensation, an 18.4% rise compared to 2018. He received $13.0 million in stock awards last year.

Anthem Inc. CEO Gail Boudreaux earned $15.5 million, up 9.1% compared to her annualized pay in 2018, with $8.4 million of that total coming from stock grants and $2.8 million in options.

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M&A Activity

Healthcare M&A Value Sees Sharp Fall in Q2 as COVID-19 Impacts Dealmaking

The aggregate value for healthcare M&A fell sharply in the second quarter, both compared to the first three months of the year and the year-ago period, as the COVID-19 pandemic dampened dealmaking.

Aggregate transaction value was $12.26 billion in the second quarter, compared to $29.31 billion in the first quarter and $137.29 billion in the year-ago quarter.

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Pharma, Biotech Debt Issuance Soars in 2020; May Fuel M&A Comeback

Pharmaceutical and biotechnology companies in the U.S. have already issued more debt in 2020 than in all of 2019, raising cash holdings to $26.92 billion as compared to $23.34 billion last year, according to an analysis by S&P Global Market Intelligence.

Three companies lead the pack in debt issuances: Amgen Inc., Pfizer Inc. and Merck & Co. Inc., issuing $9 billion, $5.25 billion and $4.5 billion, respectively.

Amgen issued and sold $4 billion of senior notes in May and $4.96 billion of senior notes in February.

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Financial Health

Biotechnology Draws $12.6B from Private Equity, Venture Capital Activity in H1

Biotechnology led the healthcare industry in investment activity from private equity and venture capital during the first half of 2020, drawing nearly $12.60 billion in funding, up from $7.28 billion for the year-ago period.

The biotechnology sector either announced or concluded 342 deals globally as of June 30, comprising mergers and acquisitions and private placements, where the main investor was either a venture capitalist, a hedge fund manager or a private equity company, according to an analysis by S&P Global Market Intelligence.

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Royalty Pharma IPO Pushes Funds Raised in Healthcare Debuts Past $10B in Q2

Royalty Pharma PLC 's $2.01 billion IPO led a pack of healthcare companies joining the public market in the second quarter of 2020 that raised $10.45 billion — the most for the quarter in the past five years, according to data compiled by S&P Global Market Intelligence.

The proceeds from IPOs for the sector are the highest in a five-year period starting from 2015, largely as a result of Royalty Pharma's contribution as the biggest U.S. IPO for the year so far.

The quarter saw 54 healthcare companies go public globally — with most of them based in China — raising the total number of IPOs completed in the sector to 90 as of June 30.

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Social Factors

Treating the Cause, Not the Symptoms: How Societal Factors are Starting to Shape U.S. Health Care

Social determinants of health (SDOH) are the conditions under which people live and work that affect their health and health risks. They are increasingly reshaping how the U.S. provides and pays for health care. Indeed, both the private and public sectors are recognizing that SDOH will help society achieve a better relationship between health care costs and quality.

Over the past couple of decades, the U.S.'s attempts to provide quality health care to its population and control costs--broadly referred to as health care reform--have had very mixed results. However, the recognition of SDOH has brought a new and broader meaning to health care reform, given the transformational trends in care delivery and payment methodologies. This requires companies to revise their growth strategies, including new ways of investing capital. Given that S&P Global Ratings credit analysis continues to incorporate these factors, we believe SDOH will increasingly influence credit ratings.

Capitol Hill Seeks To Grill U.S. FDA, CDC Chiefs about COVID-19 Political Pressure

House and Senate lawmakers want U.S. Food and Drug Administration Commissioner Stephen Hahn to testify about whether his agency is being politically pressured to quickly approve a COVID-19 vaccine and other products before they have demonstrated safety and efficacy.

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The Health Care Credit Beat: Governor Abbott Orders Elective Procedures Postponed

In late June, as coronavirus cases rose sharply in the state, Texas governor Greg Abbott ordered hospitals in eight counties to postpone elective surgeries and procedures that are not immediately medically necessary, to ensure beds are available for COVID-19 patients.

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Sector Review

U.S. Not-For-Profit Acute Health Care Mid-Year Sector View: Recovery Continues, Likely Uneven for the Rest of the Year

While the deep wounds from the loss of revenues related to the government shutdown of non-essential and non-emergent care may be in the rearview mirror, we believe acute-care hospitals and systems will continue to experience an uneven financial recovery into 2021.

Our sector view S&P Ratings' continues to be negative as hospitals try to climb back to pre-COVID-19 volumes and margins. Hospitals in most regions are ramping up non-emergent and elective procedures and services, and we don't believe we will see a repeat of the widespread and extreme revenue and margin declines experienced in March and April.

Industry Top Trends Mid-Year 2020 Update: North American Health Care

The collapse in patient volumes, due in part to directives to conserve hospital capacity and patient fears, highlighted the discretionary component of health care and the uncertainty on pace of recovery.

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