A record number of senior living borrowers defaulted on their municipal bond debt for the first time in 2021 — and yet, investors have seemingly remained unfazed so far.
Senior living companies accounted for 33 of the 64 first-time payment defaults last year, exceeding the industry’s prior record of 31 set in 2020 and totaling about $1.7 billion of muni bonds in default, according to a Jan. 3 report from Municipal Market Analytics.
That number “represented 4.3% of all outstanding sector par … a record annual default performance for any major credit sector,” the report noted.
Even so, senior living operators sold $7.4 billion in new bonds as of December 2021, representing 21% more than they sold in 2019. That’s according to an analysis by ICE Data Services that the Wall Street Journal referenced in a report Tuesday.
“The operations have not yet fully recovered, even though, in some places, bond prices have,” David Hammer, who leads municipal-bond portfolio management at Pacific Investment Management, told Wall Street Journal.
Helping to fuel this trend is the fact that demand for new bonds remains high as investors search high and low for tax-exempt income opportunities and yields generally remain low. In 2021, investors put $22 billion into high-yield, municipal-bond funds as of Dec. 15, according to a recent Refinitiv Lipper report highlighted by Wall Street Journal.
Some senior living companies opted not to issue debt in 2020 only to sell bonds in 2021 as the market turned more receptive to them, the Wall Street Journal report also noted.
Even so, Covid-19 is still depressing occupancy and driving up the cost of doing business in senior living.
As such, distress in the sector is likely to worsen before it stabilizes, according to MMA Partner Matt Fabian. Recent senior living bond defaults include a Texas non-profit that recently defaulted on municipal bonds issued to acquire eight senior living communities.
Covid-19 hit the senior living industry hard, prompting Moody’s in 2020 to warn of a wave of coming bond defaults. Fast forward to 2022 and the industry is still beating against the current of labor challenges, low occupancy and elevated expenses.
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