Pricing on a planned $175 million term loan "B" for Apria Healthcare Group jolted up from 2 3/8 % to 3% last week after Apria disclosed that a government investigation into the company's Medicare billing practices could put it on the hook for claims ranging from $4.8 billion to more than $9 billion. The Bank of America-led deal was over-subscribed and allocations close to completion before the disclosure last Monday, noted one banker.
Some investors pulled out after the statement, the banker added, but with the new pricing, the deal was still expected to have closed as LMW went to press. One buysider said the 5/8% flex was there to hold the deal together. But a banker close to the deal characterized it as "good-faith gesture, because of the statement." Officials at B of A declined comment, and calls to the Costa Mesa, Calif.-based company were not returned.
While the size of the potential claims may have unnerved some officials, they also said it was bloated. Russell Pomerantz, v.p., senior analyst with Moody's Investors Service, explained that Apria has previously disclosed it is under investigation from the Los Angeles attorney's office and there is a qui tam--whereby a whistleblower can bring an action and a portion of the awards can be awarded to them--against the healthcare company. "What is new in the disclosure is the figure, which is a lot of conjecture and over-aggressive fair disclosure," he said.
"This calculation of $5 billion would put them out of business and the government will not do this," Pomerantz added. "If there is a $9 billion settlement then they will all lose." The probe is a result of private lawsuits filed by individuals on behalf of the government. The U.S. attorney has not told Apria if it will be joining the suit. Apria has said it believes the charges and amounts to be unsupported.
The term loan "B" was originally set at $200 million and was priced at LIBOR plus 21/2 %. After being nearly twice oversubscribed, pricing was flexed down 1/8% and a $25 million piece was transferred to the $200 million pro rata. The revolver stayed at $100 million and the term loan "A" went to $125 million with a 13/4 % over LIBOR spread. The buysider said that at this point some investors withdrew on the thin pricing. A spokesman for the U.S. attorney's office in Los Angeles declined to comment on the Apria statement or anything related.