Triad Hospitals downsized its $1.4 billion acquisition credit to $1.2 billion after choosing to upsize its bond piece, as market conditions proved more favorable in the bond market than in the pro rata market. Burke Whitman, cfo, explained that the company decided to move a piece of the "A" tranche into the "B" and increase the bond offering to respond to very strong institutional and high-yield demand. "The 'B' piece and bond piece were so significantly oversubscribed that we had the nice problem to have, which is the challenge of allocating among loyal, repeat investors," he explained.
The company raised a total of $1.8 billion, broken into a $1.2 billion loan and a $600 million bond piece that was upsized from its original $400 million size. "A number of investors invested in both parts of the capital structure so we were lucky to have a robust level of interest in all pieces we were offering, so we could deal with allocation challenges," he said. Demand was so high on the "B" piece of the deal, the company was able to move a portion of the "A" into the "B" and price both at the same spread. "This "B" tranche market is strong right now," said Whitman, explaining how unusual it is to see institutional buysiders come in on a tranche priced like an "A" and structured with pricing grids. Merrill Lynch and Bank of America, co-leads on the credit, reduced the original $400 million term "A" to $250 million and reduced the $600 million term loan "B" to $550 million while upsizing the bonds from $400 million to $600 million.
The company had announced its $2 billion acquisition of Quoram, Inc. in October 2000, but Whitman explained that regulatory approvals held up financing of the deal until April 2001. Whitman said the company benefited from the auspicious timing relative to the bond market. "If we had done the deal back in the fall we probably wouldn't have been able to upsize it," he said.