Assessing the characteristics of hospital bond defaults

OBJECTIVES. The authors identify market, operational, and financial characteristics associated with the default of hospital revenue bonds using logistic regression analysis. METHODS. Data from 22 defaulted hospitals and 260 nondefaulted hospitals from 1988 to 1992 are analyzed. RESULTS. Findings indicated that defaulted hospitals had smaller market shares, were located in near-urban markets, and incurred higher expenses per discharge than nondefaulted hospitals. Defaulted hospitals also were highly leveraged and had lower debt service coverage ratios compared with nondefaulted hospitals. CONCLUSIONS. Results suggest that market share, ability to generate sufficient cash flow to meet debt service, and amount of debt on hand are critical factors in avoiding a bond default but not government payer mix.