HCA and LifePoint Hospitals are getting while the getting is good for investor-owned hospital chains, and in credit markets generally, according to one investment banker.
HCA, LifePoint ready bonds
Chains move to lengthen debt maturities
Both companies announced plans last week that lengthen their debt maturities and, in the case of LifePoint, add new borrowing capacity.
Jeff Villwock, managing director of Genesis Capital in Atlanta, said good, strong credits such as HCA and LifePoint are wise to move now. One huge risk to credit markets going forward is the staggeringly high and still rising government debt levels in Greece, Japan, Spain, Portugal, the United Kingdom and the U.S., Villwock said.
“In today’s environment, with continued uncertainty around the world, it’s probably a good idea to lock in your amendments and your extensions early,” Villwock said. “There’s a cost, whether doing a bond offering or extending your credit lines, but it’s not significant in the scheme of things.”
Even though the recession has put pressure on admissions for many hospital operators, their reimbursements are growing faster than their costs, Villwock said. The aging of the population is going to bring more volume, but Villwock has been forecasting a sharp future cut in Medicare reimbursements in response to the rapid growth in beneficiaries that has already begun. “The government hasn’t reacted to it yet, so the industry continues to do pretty well,” Villwock said.
Nashville-based HCA said it will offer $1 billion in new senior secured notes due in 2020, with the proceeds used to make payments on its term loans. HCA announced last month that it would distribute $1.75 billion to its shareholders using cash on hand and borrowing capacity on its revolving credit facilities.
Fitch Ratings, Moody’s Investors Service and Standard & Poor’s all gave the new bonds the same rating, the equivalent of one step below the lowest investment-grade rating and one step above each agency’s corporate rating for HCA.
Fitch said it expects the proceeds of the bond issue to be used to make mandatory payments on three term loans that are due in 2012 and 2013. As a result, Moody’s said, the new bonds will not increase the company’s leverage. The transaction is similar to bonds issued in 2009 that also went toward those term loans, Moody’s said.
Fitch said the borrowing associated with the shareholder distribution would add to the total of $25.67 billion as of Dec. 31, 2009. The distribution is a sign that HCA would pay out excess cash to shareholders, Fitch added.
Meanwhile, LifePoint Hospitals, Brentwood, Tenn., said in a securities filing that its lenders have agreed to amend credit arrangements made to finance the company’s 2005 acquisition of Province Healthcare Co. Two maturities were extended to 2012 and 2015, respectively, and the amount available under its revolving facilities was expanded from $150 million to $350 million, LifePoint said.
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