"Patients at the largest hospital in southeastern Georgia are being treated without the latest magnetic resonance imaging and cardiac catheterization technology because of the auction-rate bond market collapse.And I thought gas prices were bad...
The Southeast Georgia Health System delayed spending $3.6 million to upgrade the medical equipment after interest on $94 million of its auction debt tripled to 11 percent in February, said Michael Scherneck, chief financial officer. Hospitals from California to New Hampshire face similar dilemmas because they used the dying auction market to raise at least $50.5 billion, according to data compiled by Bloomberg.
* * *
Auction-rate bonds allowed local governments, hospitals and universities to issue securities maturing in 20 years or longer at short-term rates. Investors fled the market in February on concern the creditworthiness of bond insurers that guaranteed the debt would deteriorate because of losses on securities tied to subprime mortgages.
Rates on some bonds soared to 20 percent after the dealers running the auctions stopped buying securities that failed to sell, triggering a penalty rate for issuers. More than 60 percent of the thousands of auctions conducted each week have failed since Feb. 13, data compiled by Bloomberg show.