Looking for a return
Equity funds, Frists could reap $1.55 billion in IPO
Usually, when a hospital company is said to take a market-based approach, the reference is geographical. For HCA, the reference is to the types of securities the company issued the last two years and plans to issue this year.
As the company revealed more details last week about its planned initial public offering, securities filings from 2006 through last week tell the story.
In 2009, HCA sold three bond offerings totaling $3.05 billion and used the proceeds to pay down term loans due in 2012 and 2013. The company followed that up with two issues totaling $2.95 billion in 2010. Proceeds from the first offering of $1.4 billion went to pay down term loans.
Between those term loans and bonds maturing, HCA has $9.15 billion in debt coming due in 2012 and 2013, according to a securities filing.
The second offering, of $1.53 billion, helped fund a $2 billion distribution to shareholders, the third and largest of three distributions, or dividends, that HCA made to shareholders in 2010. The distributions totaled $4.25 billion.
“The IPO market wasn’t that good last year, especially for healthcare IPOs,” said Re-Jin Guo, an associate finance professor at the University of Illinois at Chicago. The company took advantage of the strengthening bond market to repay its investors, Guo said. “Now, the IPO market is open to them.”
Pointedly, HCA’s amended IPO filing states the company does “not intend to pay dividends on our common stock for the foreseeable future following completion of the offering.” HCA needed to state that to reassure the investors it hopes to entice to the IPO, Guo said. Otherwise, given that the private-equity firms and the Frist family will still control nearly 70% of the company after the IPO, potential public investors would be concerned that the controlling shareholders would pay themselves more dividends, she said.
The offering is expected during the week of March 7, with trading to begin on the New York Stock Exchange under the symbol “HCA,” according to numerous published reports.
For the investors that took HCA private in November 2006, the dividends and the proceeds from the IPO could more than repay the $5.3 billion in equity they put up in the go-private deal. The private-equity funds—Bain Capital, Kohlberg Kravis Roberts & Co. and the private-equity arm of Merrill Lynch—put up $4.5 billion in equity financing, according to a 2006 securities