Dialysis provider, DaVita, Inc., formerly Total Renal Care, Inc., two weeks ago closed its $400 million bank deal through Credit Suisse First Boston and Bank of America. The credit was re-structured to benefit from bond market receptivity to health care as the pro rata portion of the deal struggled in the wake of an overall sluggish pro rata market. Richard Whitney, cfo, explained that the bond market and institutional response to the oversubscribed $175 million "B" portion of the loan prompted the company to reduce its bank deal from $500 million to $400 million and increase its bond deal from $200 million to $225 million. Additionally, the company responded to the blow out on its "B" term by upsizing its "B" by $25 million and trimming "B" pricing to LIBOR plus 2 3/4 %--down 50 basis points--to put it on par with pro rata pricing.
"This was a very different market than it was 18 months ago," said Whitney explaining that he attributes the success of the "B" loan and pricing in the bond market to a change both in a stronger healthcare sector and specifics associated with his own company. "Healthcare is seen as a defensive sector, so as turmoil unfolded in other segments you see a lot of rotation into health care as a safe haven. It's not a cyclical business," he noted. DaVita had so much investor interest in its bonds the company increased the bond offering by $25 million and priced the notes at LIBOR plus 9 1/4% in the 144A market. Whitney noted that he can remember just 18 months ago when the company was Total Renal Care, Inc. and restructuring debt in the capital markets was not even an option.
Whitney noted that the opening of the high-yield market to healthcare enabled the company to piece out part of the deal in the bond market, further creating excitement from institutional accounts interested in the "B". Whitney said having subordinated debt as a cushion adds to the appeal of a deal for "B" players. Overall, conditions were so good for the company he said if the company was not just strictly doing a refinance they may have upsized the bond deal further. "We weren't raising fresh capital so we decided not to upsize it," he said.