HCA Plans $2 Billion Dividend to Private-Equity Owners

Tuesday, 09 Nov 2010 09:01 AM

 

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HCA Inc., the hospital chain acquired four years ago in a $33 billion leveraged buyout, plans to issue a $2 billion dividend to pay private-equity owners including KKR & Co. and Bain Capital LLC.

The dividend will be partly funded with a $1.53 billion high-yield bond issue, according to a statement today by the Nashville, Tennessee-based company.

HCA, which in May filed to sell shares worth as much as $4.6 billion in an initial public offering, hasn’t yet proceeded with the sale. Buyout firms including Bain and Carlyle Group have bought publicly traded firms in recent months as stocks are selling at the biggest discount to debt when comparing cash flow and investment-grade bond yields.

The share sale is still pending, said Ed Fishbough, an HCA spokesman, in an e-mail today. “We’ll continue to assess the timing of the launch based on overall conditions, sector performance and input from our underwriters,” he said.

HCA, in the May filing, said it plans to raise a net $2.5 billion of the total by selling new shares and will use the proceeds to repay debt.

The hospital operator may profit from the health-care legislation President Barack Obama signed into law on March 23 that provides for coverage for millions of uninsured patients, said Sheryl Skolnick, an analyst at CRT Capital Group LLC in Stamford, Connecticut.

HCA will use Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. as underwriters, said a person briefed on the plans who asked not to be identified.

Bonds Due 2021

The bonds will be issued as senior unsecured notes due 2021 and will be used to fund the dividend and pay related fees and expenses, HCA said in the statement. The company said it will also tap revolving credit agreements for the dividend.

HCA on Jan. 29 said it would distribute $1.75 billion to stockholders and vested option holders on Feb. 5.

Third-quarter net income jumped 24 percent to $243 million, HCA said in a separate statement today. Sales rose 1.5 percent to $7.65 billion, boosted by a “focus on revenue growth and operational efficiencies,” HCA said.

HCA operated 162 hospitals and 104 freestanding surgery centers as of Sept. 30, according to the earnings statement.

Record-Shattering

The hospital chain’s purchase in 2006 shattered the record for the largest leveraged buyout, held since 1989 by KKR’s acquisition of RJR Nabisco Inc. HCA’s record was eclipsed by Blackstone’s acquisition of Equity Office Properties Trust and again by the 2007 takeover of Energy Future Holdings Corp., by KKR and TPG Inc., for $43 billion including debt.

HCA’s owners put up about $5.3 billion to buy the company, according to a regulatory filing, funding the rest with loans from banks including Bank of America, Merrill Lynch & Co., JPMorgan Chase and Citigroup.

HCA was founded in 1968, when Nashville physician Thomas Frist Sr., and his son, Thomas Frist Jr., and Jack Massey built a hospital there and formed Hospital Corp. of America. By 1987, the company had grown to operate 463 hospitals, according to the company’s website. Thomas Frist Sr. is also the father of Bill Frist, a physician and the former Senate majority leader.

HCA went private in a $5.1 billion leveraged buyout in 1989, and then went public again in 1992, according to the company Web site. In 1994, HCA merged with Louisville, Kentucky- based Columbia Hospital Corp. In the mid-1990s the company, then called Columbia/HCA Healthcare Corp., operated 350 hospitals, 145 outpatient clinics and 550 home-care agencies, according to the company.

In December 2000, HCA agreed to pay $840 million in criminal and civil penalties to settle U.S. claims that it overbilled states and the federal government for health-care costs. It was the largest government fraud settlement in U.S. history at the time, according to a U.S. Justice Department news release on Dec. 14, 2000.

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