Seven percent of senior living and care-related municipal bonds are in default, compared with a default rate of less than 1% for all state and local government debt, Bloomberg reported Monday.
Seven percent equates to approximately $3.2 billion of the $43 billion total outstanding in senior living and care-related muni bonds.
“Senior housing, ”Bloomberg said, is “an outlier when it comes to the traditionally-tiny default rates in the $4 trillion municipal bond market.” Bloomberg defined senior living as encompassing “a variety of options, from communities where residents are healthy and live independently, to those that provide full-time care,” including nursing homes. The media outlet also included continuing care retirement communities under the umbrella of senior living.
The reason for the higher default rates in senior living and nursing homes appears to be the continued challenges brought about by the COVID-19 pandemic, such as labor shortages, increased wages and supply costs, according to the media outlet.
“Hundreds of nursing homes have closed since the beginning of the pandemic as they cope with those pressures, along with government reimbursements that fall short of covering costs — and the fallout is expected to continue,” Bloomberg writer Lauren Coleman-Lochner noted.
The good news, according to Coleman-Lochner, is that senior living and care-related defaults are decreasing. The bad news is that the decline “may not mean the sector is stabilizing,” she wrote, citing a May 8 report from Municipal Market Analytics analysts Matt Fabian and Lisa Washburn. Economic pressures continue to affect the sector.
“With almost $2.0B in retirement debt set to mature this year and a total of $3.5B by the end of 2024, MMA expects that — absent an unforeseen surge of issuance — sector default and impairment rates will hit new highs,” Fabian and Washburn wrote, as reported by Bloomberg. Lauren Coleman-Lochner said the analysts calculate a 10.5% rate of payment defaults in the sector next year.
