Interest Rate Swap Advisory for Hospitals and Health Systems
Managing Interest Rate Risk Is a Core Treasury Function for Health Systems. We Help You Get It Right.
Nonprofit hospitals and health systems are among the most sophisticated users of interest rate derivatives in the tax-exempt market. With large, complex capital structures that often include multiple series of variable-rate bonds, many healthcare organizations maintain swap portfolios that are integral to their debt management strategy. These derivatives require ongoing attention: monitoring counterparty credit exposure, evaluating restructuring opportunities, ensuring documentation keeps pace with evolving regulations, and maintaining proper hedge accounting treatment.
Yet many health systems rely on their banking relationships to advise them on these instruments. The same banks that are on the other side of the transactions. Evercrest Advisors provides truly independent advice, working exclusively for the borrower.
Why Healthcare Organizations Need Independent Swap Advice
The stakes are high. A large health system may have hundreds of millions of dollars in notional swap exposure across multiple counterparties, with individual trades that have been in place for a decade or more. The decisions around these positions (whether to hold, terminate, restructure, or novate) have direct financial statement and cash flow implications.
Banks and swap dealers will proactively approach health system treasurers with restructuring ideas. Some proposals genuinely benefit the borrower. Others primarily benefit the dealer. Without independent analysis, it can be difficult to distinguish between the two. An independent advisor evaluates every proposal on its merits, quantifies the economics, and provides an unbiased recommendation.
New Transactions
When a hospital or health system issues new debt and needs to hedge, Evercrest advises on the full range of decisions: hedge instrument selection, counterparty solicitation, competitive pricing, and ISDA documentation negotiation. We coordinate with bond counsel and the financing team to ensure the hedge integrates properly with the overall capital structure.
Total Return Swaps in Healthcare Finance
Total return swap (TRS) structures have become an increasingly common financing tool for health systems, particularly in connection with variable-rate bond programs. These transactions involve a unique bond structure where the TRS provider effectively purchases the bonds and assumes the remarketing risk, creating a different set of economic dynamics than a traditional bond issuance. Because of the nature of the structure, an independent fair pricing certificate on the fixed-rate bonds is typically required for tax compliance purposes. Evercrest provides independent pricing analysis and fair pricing certifications for TRS-financed transactions, giving bond counsel, underwriters, and the health system confidence that the pricing meets the necessary standards. Beyond pricing, TRS structures introduce risks that are not present in conventional bond financings, including counterparty termination risk, replacement risk if the TRS provider exits, and basis risk between the TRS terms and the underlying bond economics. Evercrest helps healthcare clients evaluate these risks before entering into a TRS, and provides ongoing analysis as market conditions and counterparty dynamics evolve.
Existing Portfolio Management
For health systems with existing swap portfolios, Evercrest provides ongoing advisory support. Rate environments change, counterparty credit profiles shift, and debt portfolios evolve. A swap that made sense five years ago may no longer be optimal. We help evaluate whether existing swaps should be maintained, restructured, or terminated, and we monitor counterparty credit exposure on an ongoing basis.
Hedge Accounting and GASB Compliance
Nonprofit health systems that use derivatives are subject to reporting requirements under GASB 53/72 (for governmental healthcare entities) or ASC 815/ASC 820 (for entities following FASB standards). Proper hedge accounting treatment requires ongoing effectiveness testing to ensure that derivative gains and losses are reported appropriately. Evercrest performs hedge effectiveness testing services that satisfy the requirements of all major auditing firms, helping your finance team and auditors maintain confidence in the accounting treatment of your derivative portfolio.
Dodd-Frank Compliance
Nonprofit hospitals are typically classified as Special Entities under Dodd-Frank, requiring a Qualified Independent Representative (QIR). Evercrest is qualified to serve as QIR for Special Entity healthcare clients, ensuring every derivative transaction is reviewed by someone with no financial interest in the outcome.
Get in Touch
If your health system uses interest rate derivatives, or is considering using them, Evercrest can provide the independent perspective your treasury team and board need.
Email: info@evercrestadvisors.com | Phone: 212-837-8900