Buysiders gagging on telecom and hungry for industrial and healthcare deals are now being pinched by a bond market that is becoming more welcoming and sapping bank loan tranches. The latest example is DaVita, Inc., an acute healthcare provider, which decreased its $500 million bank deal to $425 million last week while maintaining its $200 million bond deal. "The high-yield market is hot for healthcare," said Richard Whitney, cfo of DaVita, explaining why the company decided to go to the bond market as it refinanced its credit facility. "We still could have gotten the deal done [if bonds weren't an option], but a larger percentage would have gone into the "B," he said.
Credit Suisse First Boston and Bank of America are leading the deals. "The deal would have been more difficult to get done without the bond deal," Whitney noted regarding the fees leads will generate from the bond deal as the pro-rata part of the deal is expected to struggle.
Institutional lenders very interested in the sector and the credit, said there was a mixed feeling about the change. "It's a doubled-edged sword. If you like the credit [the bond deal] reduces your allocation, but from the standpoint of a cushion for leverage it's more positive," said one buysider. The term loan "B" piece is priced at LIBOR plus 31/4 %--an attractive price for a Ba2 rated deal in a sector that's coming back into favor. "Healthcare is being viewed as more defensive, especially acute care hospitals," said one buysider. Positives for this company include its focus on reducing leverage coupled with its new management, receivable systems, and ability to generate cash.
Buysiders said before launching the deal the company originally planned to do a $500 million credit with a $150 million bond offering as part of the structure. Now, the $425 million deal comprises a $175 million revolver, a $75 million term loan "A," and a $175 million term loan "B," with a $200 million bond offering. Whitney said the company always planned on $200 million for the bonds. One institutional lender said half of the commitments on the deal have already come in, but the pro-rata is filling up more slowly as many of the company's pro-rata lenders are the same ones that were on the company's original deal, which was restructured many times a couple of years of ago when the company was Total Renal Care, Inc. Whitney agreed the pro-rata will be the difficult piece of the deal and the previous large syndicate will reduce in size. But he said he would prefer a smaller number of banks committed to the sector.