Treasurer Sprague Implements Program to Help Hospitals Save Money, Gain Liquidity During COVID-19

With costs mounting as hospitals across Ohio test and care for the influx of COVID-19 patients, Ohio Treasurer Robert Sprague has launched the Variable Rate Demand Obligation (VRDO) Stabilization Program to provide added liquidity and ease the financial pressure hospitals are facing.

“We’re putting our balance sheet to work for those serving on the front lines of the COVID-19 crisis – our hospitals and their selfless, dedicated staff,” said Treasurer Robert Sprague. “This new program allows up to $900 million to be invested to stabilize hospitals’ short-term debt so they can focus on doing what they do best – caring for us and saving lives. If we all support one another and work together, I know Ohio will get through this stronger than ever before.”

This week, the Ohio Treasurer’s office began purchasing eligible VRDOs of participating Ohio health care systems and other critically important institutions to alleviate debt service costs during the COVID-19 outbreak. The Treasurer’s office commits to submit bids for up to $100 million of VRDOs per qualifying institution at a rate of 2% for the remainder of the declared emergency. This will ensure the health care systems receive a normalized interest rate during this time of crisis and are not unnecessarily harmed by the disruption in the VRDO market. In short, this offers much needed savings to participating health systems, while providing a fair return on the Treasury’s investment.

To care for the surge of patients and help prevent the spread of COVID-19, hospitals across Ohio are incurring a dramatic increase in costs. To make matters worse, the municipal bond market is at a virtual standstill and the market for VRDOs is under significant stress.

VRDOs are a common debt instrument used by large healthcare systems. However, with traditional investors in VRDOs feeling the pressure that’s mounted across all financial markets, many are selling their investments to raise cash. Without the engagement of its normal class of investors, interest rates are rising sharply to attract investment. Nationally, VRDO rates have jumped to their highest levels since the financial crisis in 2008 (5.2% last week). Ohio hospitals have paid rates as high as 8% over the past week.

As a result of this dislocation in the VRDO market, health care systems already feeling financial pressure face a spike in their debt service costs.

“The Ohio Hospital Association appreciates the steps the Ohio Treasurer’s office is taking to assist hospitals and health systems in their response to the COVID-19 outbreak,” said Mike Abrams, Ohio Hospital Association President and CEO. “The new Variable Rate Demand Obligation Stabilization Program will help support Ohio health care systems and other critically important entities maintain access to necessary patient and community health services during this crisis.”

The following Ohio health care systems have already signed on to participate in the program:

Bon Secours Mercy Health
Cleveland Clinic
Nationwide Children’s Hospital
Premier Health
Summa Health

To qualify, the health care system’s debt must be rated in the three highest categories by at least one nationally-recognized rating agency or otherwise be a lawful investment of state interim funds under the Ohio Revised Code.

The program will be revisited on a weekly basis and could expand or contract as the state Treasury’s liquidity needs require.