A conference call on DaVita's proposed price cut last week turned into a forum for investors to voice their displeasure with the repricing trend. JPMorgan is looking to take pricing down to LIBOR plus 1 1/2% on a new $2.68 billion term loan, but investors have expressed their displeasure. On last Monday's call, a DaVita official spent about 15 minutes going through the business -- at what one investor who was on the call described as "warp speed" -- and then asked for questions. The first question turned into a statement, as one buyisider said LIBOR plus 150 basis points is too aggressive for a 3B credit and proposed LIBOR plus 175 basis point pricing with a grid to 150 if ratings improve.
The DaVita official told listeners the call was supposed to be to discuss the credit, but the few investors that got through all continued to comment on pricing. One investor said he was told pricing might get pushed back up to LIBOR plus 1 3/4%. A JPMorgan spokesman declined comment.
DaVita is looking to refinance debt it borrowed just less than a year ago to back its $3.05 billion acquisition of Gambro Healthcare. The current facility consists of a $279 million term loan "A" and a $2.4 billion term loan "B" that is expected to be rolled into one, $2.68 billion term loan. Pricing on the "A" loan is currently LIBOR plus 1 3/4% and pricing on the "B" loan is LIBOR plus 2%. The company also has a $250 million revolver, priced at LIBOR plus 1 3/4% drawn, which a DaVita spokeswoman said it will likely be looking to reduce pricing on as well.
"That repricing is really quite challenging in this market," one portfolio manager said. "A number of LIBOR 150, 175 are not trading well or are trading just above par or below par." DaVita's current term loan "B" was trading at 101, but traded down to 100 1/8; the term loan "A" traded down to a similar level, a trader said. The portfolio manager said that 200 basis points over LIBOR was fairly aggressive when JPMorgan first printed it and going to 150 is a "non-starter." But he said his firm is getting the message from JPMorgan that it knows it is aggressive and he would not be surprised if it bumped it up to LIBOR plus 175 with call protection.
The spokeswoman said that market conditions were right and the company was doing well, so it made the decision to refinance. "We delevered much more rapidly than was originally contemplated. Leverage is just under 4.5 times," she said. She would not comment on what leverage was expected to be at this time nor whether DaVita approached JPMorgan or vice versa. Leverage following the acquisition could not be determined.
Based in El Segundo, Calif., DaVita provides dialysis services and as of March 31, the company operated or managed over 1,200 outpatient facilities serving about 98,000 patients.
