The Johns Hopkins Health System, for example, had $675.2 million worth of swap contracts outstanding at the end of 2008, according to its financial statements. Its contracts paid out fixed rates ranging from 3.3265 percent to 3.946 percent, but the other parties' interest rate was 67 percent of the one-month Libor, or London Interbank Offered Rate. On Friday, that rate was 0.52 percent.
As a result, Hopkins was forced to post $103.3 million in cash to offset the declining value of the swap agreements and take an accounting write-down of $152.4 million in the fourth quarter, leading to a loss of $134.5 million for the period. Hopkins officials could not be reached for comment.
The University of Maryland Medical System recorded a loss of $128.7 million in the fourth quarter and had to post $105.7 million in collateral. The system raised the money through a line of credit, Hank Franey, senior vice president and chief financial officer, said Friday.
He played down the losses - which led to the University of Maryland Medical Center losing 77 cents on every dollar of revenue in the fourth quarter of 2008 - saying, "We're not troubled by it at all.
"This is a financial instrument," Franey said. "If interest rates go up - and we are at unbelievably low rates - we in theory could have a $105 million asset.
"Other investors have used this as a speculative investment, trying to bet against what is going to happen with interest rates. We don't do that."
Franey's bigger concern right now is the sharp decline in the value of the medical system's investments. The system has counted on pumping $15 million to $20 million in interest income each year into its operating budgets.
"It's coming at a not-great time," said Ken Kaufman, managing partner at Kaufman Hall, Chicago-based financial advisers to hospitals, including some in Maryland. "For years, it worked fine. Hospitals saved lots and lots of money, not only in Maryland but around the country.
"You couldn't point to another period and say, 'Watch out for this,' because it had never happened before."
