Amid speculation that the credit crunch could spur more hospital deals, tight credit markets scuttled a hospital sale last weekfor now, at least.
HCA exercised its option to terminate its deal to sell 339-bed West Florida Hospital, Pensacola, Fla., to Baptist Health Care Corp., Pensacola, for $245 million. Baptist Health was not able to meet a contractual deadline to secure financing for the deal, said Al Stubblefield, president and chief executive officer of four-hospital Baptist Health.
Late last month, Moodys Investors Service speculated in a research report that lack of credit could push more not-for-profits to pursue a sale (Jan. 5, p. 12). The investor-owned chains, Moodys also said, still have the debt capacity to make acquisitions.
Baptist Health and HCA were targeting a Nov. 6, 2008, closing for the deal, but Baptist Health wasnt able to sell a $525 million bond issue when it went to market during the week of Oct. 20, Stubblefield said. The bond proceeds were to cover the cost of the acquisition and refinance other debt, he said. There were virtually no healthcare bonds sold in October in this country, he added. Certainly not at the size issue that we were going to be selling. Baptist Health was looking to sell fixed-rate bonds with maturities of 25 to 30 years, Stubblefield said, rather than the variable-rate bonds that hammered tax-exempt providers early last year (Feb. 25, 2008, p. 6).
HCA said it will continue to operate the hospital as it has done for about 30 years. The company was not counting on the cash from the planned sale as part of its financing plans, Ed Fishbough, an HCA spokesman, said in an e-mail.
The problems that Baptist Hospital was having in securing its financing had no effect on HCAs decision to exercise an option that allows it to issue more debt to some of its bondholders in lieu of an interest payment due in May 2009, Fishbough said. HCA announced that it would exercise the payment-in-kind, or PIK, option on some $1.5 billion in bonds during its third-quarter earnings conference call on Nov. 6the same day that Baptist Health and HCA had planned to close the West Florida Hospital deal. At the time, HCA said that it decided to make the move strictly as a precaution given the immense uncertainly about the credit markets. Exercising the option will conserve $144 million in cash.
The companys executives stressed on the conference call that HCA has $2 billion in available liquidity under its bank credit agreements (Nov. 10, 2008, p. 12).
Had the deal been completed, Baptist Health planned to rationalize the services offered by the two hospitals to create a strong tertiary hospital, Stubblefield said. Now, youve got two underutilized facilities. Take two hospitals that are underutilized and make one that is very heavily utilized and efficientthat would enable us to be more solid financially long-term. The deal had been given antitrust clearance by the Federal Trade Commission, Stubblefield said.
Both hospitals trail the market share of the largest hospital in Pensacola, 458-bed Sacred Heart Hospital of Pensacola, Stubblefield said. Sacred Heart is the flagship of two-hospital Sacred Heart Health System, which is part of St. Louis-based Ascension Health, a Roman Catholic system.
It is not likely that Sacred Heart could step in and replace Baptist Health as a suitor for West Florida Hospital, Stubblefield said. As the market-share leader in Pensacola, antitrust clearance would likely be harder to obtain, he said. Moreover, Sacred Heart Hospital is already operating at 75% capacity, so it would have a hard time consolidating services on its campus, Stubblefield said.
As a result, he said, he doubts that Sacred Heart would bid enough to entice HCA to sell.
Patrick Madden, president and CEO of Sacred Heart Health System, declined to comment.
While the deal is dead and the hospital has been pulled off the market, this may not be the last word, according to Stubblefield. If and when financing options became available, if we felt that they were amenable to an offer, we would certainly consider going back to them, Stubblefield said. They know that.