Look­ing for a re­turn

Equity funds, Frists could reap $1.55 bil­lion in IPO

Modern Healthcare - - The Week In Healthcare - Vince Gal­loro

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

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