HCA Hits Market; Pricing Scrutinized

The $8.8 billion term loan backing the leveraged buyout of HCA came to market last week with a big bank meeting, surprisingly little fanfare and an early call for better pricing.

  • 27 Oct 2006
Email a colleague
Request a PDF

The $8.8 billion term loan backing the leveraged buyout of HCA came to market last week with a big bank meeting, surprisingly little fanfare and an early call for better pricing. While it's the biggest term loan to ever hit the market, bankers and investors have been gearing up for it for so long that the actual launch was somewhat anticlimactic. The bank meeting at the Ritz Carlton last Tuesday was packed. One portfolio manager noted, "With $8 billion to sell you may as well invite everyone: mom, dad, sister, brother, grandma, grandpa, aunts, uncles, cousins, and the dog and cat." But the lead banks have been trying to collect commitments for the past few weeks -- and supposedly have $3 billion already lined up ­ so the "wow" factor was pretty low.

Price talk hovered around LIBOR plus 2 1/2% all summer, but the $8.8 billion term loan "B" launched at LIBOR plus 2 3/4% and the buyside is speculating it will need to rise to 3% to clear the market and trade well.

"At first blush, it's a company everyone likes from a senior creditor standpoint," one potential investor said. "It's really just a matter of, given the size, what's the pricing. It's one of those deals almost everyone is going to play, but how much they play will be dependent upon pricing. From a credit standpoint, 275 is probably a good buy...but if you want it to trade well, at 275 everyone will be filled, so if they want to create any excess demand for it, 300 would be good."

The credit, which was tweaked slightly since first announced in an August Securities and Exchange Commission filing, now consists of a six-year, $2 billion asset-based revolver; a six-year, $2 billion revolver; a six-year, $2.75 billion "A" term loan; a seven-year, $8.8 billion term loan "B" and a seven-year, $1.25 billion Euro tranche. There is also $4.2 billion in second-lien notes and $1.5 billion of payment-in-kind notes set to mature in 2016.

A large bond portion could mean portfolio managers will sell their exposures to other healthcare names so they are not overly exposed to healthcare debt, said Kyle Smith, an analyst at Jefferies & Co. The road show began last week. There could also be selling on healthcare names if HCA's bonds launch at a level that makes the unsecured debt of these companies look expensive. Similar acute care hospitals most likely to be affected include: Tenet Healthcare Corp., Triad Hospitals, IASIS Healthcare and Community Health Systems. HealthSouth, one of the U.S.'s largest healthcare services providers, could also be affected, said Smith. Calls to spokespeople at these companies were not returned. Larry Cash, cfo of Community Health, also did not return a call.

But some investors believe it's just too early to tell what will ultimately happen. "They said they had $3 billion in orders, but there's still a lot of wood left to chop," said a portfolio manager. "You have to price it to get that last incremental dollar ­ that's what gets you over the hump." The first portfolio manager echoed the skepticism. "Does it clear at 275? To be determined," he said. "Check back in a week."

  • 27 Oct 2006

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 317,691.74 1201 8.90%
2 JPMorgan 291,227.96 1326 8.16%
3 Bank of America Merrill Lynch 285,088.11 991 7.99%
4 Goldman Sachs 217,749.25 714 6.10%
5 Barclays 209,291.80 811 5.87%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 32,320.82 147 6.67%
2 Deutsche Bank 32,259.50 104 6.66%
3 Bank of America Merrill Lynch 28,890.43 85 5.96%
4 BNP Paribas 25,663.29 144 5.30%
5 Credit Agricole CIB 22,617.86 130 4.67%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 18,160.85 71 9.15%
2 Morgan Stanley 15,215.44 76 7.67%
3 UBS 14,195.29 55 7.15%
4 Citi 14,014.57 86 7.06%
5 Goldman Sachs 12,113.98 67 6.10%