Ardent distribution coming
Welsh Carson could reap up to $277 million
Like three other privately held hospital companies, Ardent Health Services said last week that it is planning to make a distribution to its shareholders. Whether, like many other investor-owned hospital companies, eight-hospital Ardent also is gearing up for potential hospital acquisitions, the company wouldn’t say.
Ardent plans to issue a $400 million term loan due in 2016 and a $75 million revolving credit facility that ends in 2015. The term loan will fund a distribution to its majority owner, private equity firm Welsh Carson Anderson & Stowe, of up to $277 million, said Ashley Crabtree, Ardent’s vice president and treasurer. As is the case with fellow Nashville-area companies HCA, Iasis Healthcare and Vanguard Health Systems, the distribution is based on Ardent’s good financial performance in 2009, Crabtree said.
“Welsh Carson remains a very committed sponsor to the company,” Crabtree said. “They have been in this investment since 2001, and this is the first meaningful distribution that will have been made to Welsh Carson since then.”
The remainder of the term loan funds will be used to retire some existing debt and for general corporate purposes that could include acquisitions, but the money is not necessarily earmarked for that, Crabtree said.
Standard & Poor’s and Moody’s Investors Service both gave Ardent a rating below investment grade. The ratings are consistent with what those agencies have given Ardent’s peer companies, Iasis and Vanguard, Crabtree said. S&P gives all three companies a corporate credit rating of B, which is two steps below the lowest investment-grade rating. Moody’s gives all three companies an overall rating of B2, which is essentially the same step on its ratings ladder as S&P’s ratings of the companies.
Both ratings agencies cited the increased leverage that the transaction will bring; according to Moody’s, the new borrowing will raise the ratio of debt to earnings before interest, taxes, depreciation and amortization to 4 from 2.4. They also noted Ardent’s lack of geographic diversity, as its eight hospitals are in Albuquerque and Tulsa, Okla.
As a risk, S&P cited the company’s reliance on Albuquerque for its profits. It also credited the company with divesting weak-performing hospitals in the Tulsa market and a physician practice group in Albuquerque and cutting contract labor, all contributing to an increase in operating margin of two percentage points between 2007 and 2009.
Moody’s also noted Ardent’s reliance on its New Mexico health plan for profits. Ardent has strong positions in its two markets and recorded net revenue of about $1.8 billion in 2009, Moody’s said.