Ar­dent dis­tri­bu­tion com­ing

Welsh Car­son could reap up to $277 mil­lion

Modern Healthcare - - The Week In Healthcare - Vince Gal­loro

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.

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