The generally stable municipal bond market has been rocked by turbulence stemming from the implementation of a 2014 Government Accounting Standards Board rule that has added billions in previously unreported liabilities, according to Bloomberg. The rule, GASB 68, requires, among other things, that governmental entities participating in multi-employer pensions report their proportionate share of the unfunded liability and that net pension liabilities be included on governments’ statement of net assets. This has led one Mississippi hospital, Magnolia Regional Health Center, to move $127 million in unfunded liabilities onto its books, which in turn put its debt above the initial limits set by bondholders. This has put the hospital in danger of default, and prompted Moody’s to downgrade the hospital’s credit rating to junk. Several hospitals across the country have been similarly affected.  Magnolia has filed a request to a judge to either prevent a technical default or change the terms of the bond, arguing that the hospital network has never failed in meeting its bond obligations. It noted that the only thing leading it to default is a technical matter, not anything that is or is not being done by the hospital itself. 

Bloomberg said Magnolia might have cause to be optimistic, as a South Carolina health network facing a similar issue was able to get bondholders to waive the covenant violation and revise the contract to account for the new standards.