For Sheagren, the CFO of the hospital in Mattoon, the financing with JPMorgan marked the first time he had used a so- called private placement to raise funds instead of a public bond sale in his 37 years in the industry. "It was a win-win for everybody."

Direct Placements

"All you hear from the national press is the banks are not lending," said David Johnson, a managing director in the health-care and higher-education group at BMO Capital Markets in Chicago. "What we're seeing is that the banks have all of these deposits and they have to do something. And they are doing direct placements."

Credit-grading firms and regulators remain skeptical. Both S&P and Fitch Ratings have said borrowers were taking too long to disclose such loans, leaving investors with an incomplete picture of their debt. The Municipal Securities Rulemaking Board, which governs the market, last month said it had taken up the matter with the U.S. Securities and Exchange Commission.

The raters and regulators also have warned that terms of direct placements may favor banks, such as by letting them force borrowers to accelerate repayment when credit marks are cut.

"This is very different from long-term fixed-rate debt," said Andy Majka, managing director and chief operating officer at Kaufman, Hall & Associates in Skokie, Illinois, which advises hospitals. "The bank can pull this relationship. They have some pretty important protections."

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