Iasis, Vanguard making payouts to their backers
Investor-owned hospital companies reported strong earnings throughout 2009, and now the private equity backers of two of those companies will reap the rewards. Iasis Healthcare and Vanguard Health Systems have both announced that they will make payouts to their investors because they have built up their cash reserves and expect that to continue.
Nashville-based Vanguard is making a $300 million payment to its investor group, led by the private equity firm Blackstone Group. The company will use cash on hand and part of the proceeds of a $950 million issue of eightyear notes to make the payout, which is the first since the company was founded in 1997, said Vanguard spokesman Aaron Broad. The Blackstone-led investor group recapitalized Vanguard in 2004. “Instead of having the cash just building up, we decided to distribute a portion of it as a dividend,” Broad said. Vanguard reported cash and cash equivalents of $389.3 million as of Sept. 30, 2009.
The company also will save interest on the debt that it is refinancing. The new notes carry an 8% interest rate, but will be used to retire $575 million in notes due in 2014 that pay 9% interest and $216 million in notes due in 2015 that pay 11.25%.
Vanguard also revealed in a securities filing that it will write down the value of its two Chicago-area hospitals by $43.1 million in a noncash charge to earnings. The hospitals’ operating performance has not improved to the extent the company originally thought possible, according to the filing. Vanguard signed a nonbinding letter of intent in November to buy two suburban hospitals from Resurrection Health Care, Chicago. Vanguard wouldn’t be in a letter-of-intent “situation with those other hospitals in Chicago if we thought it was a lost cause,” Broad said, referring to the market.
Meanwhile, Franklin, Tenn.-based Iasis said it will repurchase $120 million of preferred stock held by its investor group using cash on hand. Iasis reported cash and cash equivalents of $206.5 million as of the end of its fiscal 2009, which was Sept. 30, 2009.
Carl Whitmer, chief financial officer of Iasis, said that the preferred stock was accruing interest at a rate of 11.75%, so repurchasing them eliminated that future liability. “We still have good liquidity,” Whitmer said. “We still have low leverage on a relative basis. We can still do the things we want to do.” That includes capital investments in its hospitals or new acquisitions, he said.
The Iasis investor group is led by three private-equity firms: TPG, JLL Partners and Trimaran Fund Management. In 2007, the company borrowed $300 million to repurchase equity. Since then, Whitmer said, Iasis has reduced a key leverage ratio—which compares debt to earnings before interest, taxes, depreciation and amortization over the last 12 months—from 5.7 to 4.1, although this transaction will increase that ratio by 0.4.