(Story updated at 5:15 p.m. ET.)
Prime Healthcare Services may have walked away from its biggest deal to date, but the rapidly-growing hospital chain is once again shoring up its balance sheet for more takeovers.
The Ontario, Calif.-based company plans to issue $700 million in new debt that will fund previously-announced deals. The bond offering Monday received a B3 rating with a stable outlook from Moody's Investors Service.
The high-yield bond was issued this morning and is expected to become available by early next week, according to a spokeswoman for Prime. The bonds also received a B+ rating from Standard & Poor's.
Prime abandoned its $843 million bid for six-hospital Daughters of Charity Health System in Los Altos Hills, Calif., after California Attorney General Kamala Harris imposed more than 300 conditions on the deal earlier this year. If completed, the transaction would have marked new ground for Prime, which has typically grown by adding one or two hospitals at a time.
Daughters on Friday announced a deal with private equity firm BlueMountain Capital Management which will provide a $250 million capital injection. The deal gives BlueMountain the option to purchase Daughters after three years. In the meantime, the investment group has created a new entity, Integrity Healthcare, to manage and operate Daughters' hospitals.
Yet even without Daughters, Prime is moving forward with a number of other acquisitions across the country. The chain has disclosed at least five more buys since October.
Prime plans to use $183 million from the bond offering to purchase six additional hospitals by year-end, the spokeswoman said.
These acquisitions include St. Michael's Medical Center in Newark, N.J.; St. Clare's Health System in Denville, N.J., which received court approval last month; as well as two hospitals from Trinity Health, St. Joseph Mercy Port Huron (Mich.) and Mercy Suburban Hospital in Philadelphia.
Prime has offered $17.5 million, plus $20 million in capital commitments, for St. Joseph Mercy Port Huron, according to documents filed with the Michigan attorney general. The St. Clare's transaction is valued at $62 million.
The bond offering will also refinance some of Prime's existing debt. The senior unsecured notes mature in 2023.
Although Prime has been growing rapidly, its business is still concentrated in California and a few facilities account for a majority of its earnings, Moody's said in explaining its sub-investment grade rating. Moreover, the additional takeovers have added considerable debt to Prime's balance sheet—and more buys are likely to be on the horizon.
Moody's said it will be watching to see how well the company diversifies its revenue and whether Prime funds future buys with debt or cash on hand.
Prime's ambitious growth strategy focuses on turning around struggling hospitals that are often at the end of their rope. The company offers a lifeline—and then goes to work cutting costs, wrangling better rates with insurers and closely tracking financial, clinical and operational metrics. Its tactics are controversial, particularly with unions and insurers, and Prime has run into roadblocks in some communities.
Prime had $2.5 billion in revenue for the 12-month period ended March 31, according to Moody's. Privately-held Prime does not publicly disclose its earnings results.
