AHA urges bankers to work with stressed hospitals

The AHA today urged the American Bankers Association to encourage its member financial institutions to commit to working expeditiously with hospital and health system borrowers who are unable to meet financial and operating covenants because of the impact of the COVID-19 pandemic, and to support relief from regulatory or other requirements that limit the lenders’ ability to provide much-needed liquidity.

AHA estimates that the financial impact to hospitals and health systems from COVID-19 expenses and revenue losses over the four-month period from March 1 and June 30 totals $202.6 billion, with losses averaging over $50 billion per month, according to a report released yesterday and shared with the ABA in today’s letter.

The letter notes that COVID-19’s “unprecedented impact on hospital borrowers – drastic decreases in revenues, significant increases in expenses, and large losses in investment portfolios as they care for a nation’s struggling population – could, at some point, result in noncompliance with operating and financial covenants in financing documents.

“Borrowers need to maintain their focus on managing the COVID-19 crisis, and need their lenders to provide prompt waivers of any technical defaults, rather than ‘forbearance’ or other agreements that leave borrowers, as well as their many stakeholders, in an uncertain position. Lenders’ waivers are crucial to avoid unintended cross-defaults under other agreements (such as bond indentures, leases, and supplier agreements), and to permit the borrower’s auditors to deliver unqualified audits.”