HCA continued last week to take steps toward resolving the debt maturities it faces in 2012 and 2013.
Outlook good for HCA IPO
Possible stock offering could raise $3 billion, cut debt
The biggest step could come in the form of an initial public offering of stock used to pay down some of that maturing debt, according to two unnamed sources quoted by Bloomberg News. The sources said that the offering could be worth between $2.5 billion to $3 billion, while another unnamed source cited in the report said it could go as high as $4 billion.
The company also said in a securities filing that lenders who financed its 2006 buyout have agreed to push back by four years the maturity on $2 billion in different tranches of a term loan due in November 2013. In return, HCA is agreeing to boost the interest it pays on those tranches by 1 percentage point, the filing said.
The two original sources in the Bloomberg story said that the proceeds of an IPO would go toward reducing HCA's debt, rather than providing returns to the company's owners. The $33 billion leveraged buyout of HCA in November 2006 was led by three private-equity firms—Bain Capital, BAML Capital Partners and Kohlberg Kravis Roberts & Co.—and members of both the Frist family and the management team. The company's debt stood at $25.67 billion as of Dec. 31, 2009, according to a securities filing. Since then, the company has announced a
$1.75 billion distribution to its shareholders that will add to that debt (Feb. 1, p. 4). That distribution marks a partial exit from the investment and is one of four such distributions announced this year by private-equity-owned hospital companies (April 5, p. 32).
HCA has no comment on the report, spokesman Ed Fishbough said.
“My guess is the offering will be very well-received,” said Jeff Villwock, a managing director with Genesis Capital in Atlanta. Investors seem to be betting that hospital stocks will benefit from the healthcare reform law, and HCA is an industry leader as the largest hospital company by far, he said.
The amendment to HCA's credit agreement also reduces the medium-term financing pressure on HCA. Under the 2006 buyout, HCA signed a $13.55 billion credit agreement including three term loans due in 2012 and 2013, according to a securities filing. The loans consisted of a $2.75 billion loan due in 2012, an $8.8 billion loan due in 2013 and a term loan made by a European subsidiary of 1 billion euros, or about $1.31 billion at the time. As of Dec. 31, 2009, HCA had $1.91 billion due on the 2012 term loan, $6.52 billion due on the 2013 loan and $564 million (or 394 million euros) due on the European term loan, according to a securities filing. The amendment would affect nearly one-third of the amount due in 2013.
Bond investors have showed no reluctance to continue lending to HCA. Just last month, the company issued $1.4 billion in new 10½-year notes (March 15, p. 4). The issue was 40% larger than when HCA announced it earlier that month. Last year, HCA sold a $1.5 billion issue after announcing plans to sell $500 million in new bonds (April 20, 2009, p. 12). In both cases, the proceeds were dedicated to paying down the term loans.
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