Despite a reduction in the first half of the year, health care issuance remains strong as issuers redesign their operations to remain competitive, according to some market participants.

From January through June, health care volume dropped 41.9%, to $9.25 billion, compared with the same period last year, according to Securities Data Co.

Most of the drop stemmed from decreases in the amount of refundings and combined new-money and refunding issues partly due to higher interest rates, according to some market analysts. Refundings tapered off by 49.8%, to $3.21 billion, while combined issues dropped by 70%, to $1.34 billion.

New-money issuance in the first half of the year fell 7.1%, to $4.7 billion.

Don Carlson Jr., president of Ziegler Securities, said that part of the decrease in issuance can be traced to widespread mergers and acquisitions, which are spurring the consolidation of many health care institutions.

Carlson said that many capital projects are on hold until after the mergers and acquisitions are completed.

But some analysts said that the 1994 half-year figures are similar to the amount of volume issued before interest rates dropped, which caused refundings to balloon over the last several years.

"How quickly we forget," said Terence Mieling, a vice president and national director of health care at John Nuveen & Co.

Vinton Rollins, a principal at Shattuck Hammond Partners Inc., said that despite the recent increase in interest rates, the level of issuance in the first half of the year was "surprisingly high."

As managed care providers multiply in their markets, health care institutions are continuing to issue bonds to help redesign their operations, market players said.

Rollins said that instead of financing typical "bricks and mortar" projects, new-money issues are financing projects to prepare for the "new game in the next five to 10 years" -- outpatient care, Rollins said.

"The time is good for strategizing," Rollins said.

Mieling said that he expects bonds will increasingly be used to finance management information systems that will enable institutions to track health care quality and cost.

Of six health care issuance categories tracked by Securities Data, only two -- equipment loans and nursing homes -- showed gains in the first half of 1994 compared with last year.

Analysts said that despite recent increases in interest rates, health care institutions still need to finance equipment purchases for existing institutions and new ambulatory care facilities.

Carlson said the increase in nursing home issuance indicates continued growth of long-term care centers needed by an increasingly aging population.

Mieling said that if interest rates stay the same, he anticipates another $9 billion of issuance by the end of the year.

Ed Malmstrom, managing director and manager of health care at Merrill Lynch & Co., said he does not expect a dramatic increase in volume in the next half year. But, he added, several health care institutions in New York will be selling about $300 million of debt in the coming months. Those institutions originally had been expected to sell the debt last year, but faced federal regulatory delays, he said.

In the first half of the year, Merrill Lynch garnered the top position as senior manager on health care issues, underwriting $1.15 billion of bonds in 13 issues. Merrill Lynch was followed by PaineWebber Inc., which underwrote $1.11 billion of bonds in 21 issues; CS First Boston, $911 million of bonds in 22 issues; Lehman Brothers, $597 million of bonds in 15 issues; and Smith Barney Inc., $596 million of bonds in 20 issues.

California led the nation in health care volume, issuing $1.36 billion of bonds, followed by New York State with $1.29 billion, Pennsylvania with $781 million, Illinois with $706 million, and New Jersey with $488 million. HEALTH CARE Senior Managers Volume Manager ($ mils.) 1 Merrill Lynch $1,152 2 PaineWebber 1,113 3 CS First Boston 911 4 Lehman Brothers 597 5 Smith Barney 596 6 Ziegler Securities 407 7 J.P. Morgan 401 8 Morgan Stanley 397 9 Bear Stearns 37110 Goldman Sachs 307 Nursing home and life-care issues areincluded. Private placements, short-termnotes, remarketings, and taxable debtissued by private nonprofit organizations areexcluded. Source: Securities Data Co.


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