Bankers Trust New York Corp. has set up a separate group to provide asset-backed funding to hospitals, nursing homes, and physician groups, becoming one of the first major banks to get into the business.
Bankers Trust is setting up a separately capitalized special-purpose company, Pathways Healthcare Co., that will purchase and structure health care receivables, said Joseph L. Sevely, vice president and head of the new group.
The company will eventually seek to get a credit rating, probably in the next 18 months, according to William J. Maher, marketing director at Bankers Trust.
Bankers Trust will provide the major portion of a still unspecified amount of capital for the special-purpose company in the form of a revolving credit facility from BT Commercial Corp. The rest will be provided by Lord Securities Corp., a New York-based brokerage firm.
The unit will work with Accelerated Receivables Management, a Chicago- based health care consulting and management firm, and will use industry receivables, or expected payments, to structure financing for the health care institutions.
Bankers Trust executives noted that the market for doing business with smaller, less creditworthy health care groups has increased as organizations like hospitals run into difficulty obtaining financing. The bank estimated that only a small part of the estimated $100 billion health care receivables market has so far been used for structured financing.
One major difficulty facing banks and other financial firms that try to lend against or securitize health care receivables has been the difficulty of assessing and monitoring the flow and status of payments to smaller health care providers.
To overcome this problem, Bankers Trust and Accelerated Receivables have jointly developed an electronic program to monitor receivables at health care units.
Receivables began to be used by the health care sector to issue commercial paper in the late 1980s, and such use has gained ground as health care providers became increasingly sophisticated about managing their finances.
"Securitization gives them access to the lower cost of funds that is often available in the capital markets," Standard & Poor's noted in a recent report. "For health care providers that are unrated or that have speculative-grade debt ratings, securitization is a compelling alternative to traditional bank funding."
Sharon Crockett, a director at Standard & Poor's, said the bank's effort to set up asset-backed funding programs for smaller health care groups is part of a natural evolution of the market.
"What you're seeing are smaller hospitals and other unaffiliated groups getting together to sell their receivables into a pool that will issue notes backed by the receivables through a special-purpose conduit," Ms. Crockett said.
In a typical transaction, borrowers pledge outstanding receivables against a loan or sell them to a funding source in exchange for early payment. The percentage is based on the value of the receivables and the estimated amount that will be collected. The so-called conduit that purchases the receivables either collects the payments or converts them into securities, which are then placed privately or publicly.
Lending to health care companies and the use of receivables to structure funding have both grown rapidly over the past few years. Bankers Trust reported that it has structured some $5 billion of asset-based loans and receivable credits over the past two years and provided more than $6 billion of financing to hospitals and health care companies over the last 12 months.