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Inflation drives unstable bond financing in first half of 2022: Ziegler

Pushed by inflation, bond financing has been sluggish and unstable throughout the first half of the 12 months, in line with specialty funding financial institution Ziegler. 

After beforehand elevating the short-term rate of interest by 75 foundation factors, the Federal Reserve is predicted to try to sluggish the market once more by elevating “its benchmark in a single day rate of interest by three-quarters of a proportion level to a goal vary of two.25% to 2.50% on the finish of a two-day coverage assembly on Wednesday,” Reuters reported. 

Ziegler report, July 26, 2022

In keeping with Ziegler, the issuance of senior dwelling tax-exempt debt for the primary half of 2022 was down roughly 9% from the identical interval final 12 months. That compares with a change of 41% in 2021 over 2020, as a result of pandemic. Whole par quantity was barely beneath final 12 months at practically $1.6 billion by June 30, in contrast with practically $1.8 billion for a similar interval in 2021, Ziegler mentioned.

“Though the pandemic lingered into 2021, the primary half confirmed borrower confidence as rates of interest had been nonetheless very low and senior dwelling bond issuance closed 2021 with greater than $6.4 billion,” Cathy Owen, vice chairman of senior dwelling analysis at Ziegler, wrote within the newest subject of the Senior Dwelling Finance Z-Information e-newsletter.

The 12 months began with debtors profiting from decrease rates of interest carried over from the fourth quarter of 2021. That modified in mid-February, in line with Owen, as charges started to rise and disrupt the market. 

“Though plenty of debtors are nonetheless choosing financial institution direct buy financings, as phrases on these loans usually prolong to 10 years or extra, this has slowed in 2021 and 2022 in comparison with prior years. Nearly all of these financial institution financings are for brand new cash issuance, refundings, expansions and affiliations,” she mentioned.

A lot of the bond financing quantity thus far this 12 months has been within the type of fixed-rate points, as letter of credit-backed variable charge demand bonds have fallen out of favor since 2019, Owen mentioned. Amongst fixed-rate points, rated debtors made up 55% of the quantity within the first half of 2022. The share for rated issuance for a similar interval final 12 months was 46%

Jessica Johnson, supervisor of healthcare banking for BOK Monetary, beforehand predicted to the McKnight’s Enterprise Every day that the quantity of senior housing tasks and acquisitions will decelerate by the top of the 12 months, then normalize considerably in 2023, as patrons and sellers search for a “completely satisfied medium” when it comes to pricing.

“Because the Federal Reserve started to boost short-term charges so as to battle inflation, we have now seen a slight enchancment. With one other charge enhance on the horizon, it’s hopeful that inflation will pattern downward and municipal bonds will see larger demand,” Owen wrote.

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