Vanguard Health Systems has scored a Ba3 rating for its $150 million senior secured credit facility, which is currently in syndication, and a B3 rating for an upcoming $200 million note offering. Russell Pomerantz, v.p., senior analyst for Moody's Investors Service, said good asset coverage supports the credit-facility rating, explaining the disparity between the notes and loan ratings for the owner and operator of acute health-care hospitals. Calls to the company, located in Nashville, Tenn., were not returned.
Moody's also takes comfort in the management team's previous experience in operating a hospital management company and in the level of equity support from Morgan Stanley Capital Partners, Pomerantz, noted. Management and MSCP have invested $303 million in the company and have indicated that another $322 million is available for potential acquisitions. Total debt-to-book capital for 2001 is estimated to be 33%, which is reasonable, he added.
"The hospital sector has been doing well," noted Pomerantz, explaining that "the hospitals have been beaten down for some years. Recently they have been given better contracts and improved reimbursements from Medicare. The question is whether this will continue?" Moody's has concerns over the modest operating margins, Pomerantz added, and since Vanguard goes after hospitals that are underperforming and attempts to turn them around, there is a leverage build-up risk associated with the strategy.
Bank of America and Morgan Stanley Dean Witter are leading the five-year revolver, which has an out-of-the-box spread of LIBOR plus 3%. Closing is scheduled for July 30. General Electric Capital, Credit Suisse First Boston and UBS Warburg have signed onto the deal.