Health Management Associates announced a major recapitalization that calls for the hospital management company to return about $2.4 billion to shareholders through a $10 per share one-time special cash dividend. Officials at the company explained that the recapitalization will reduce its overall cost of capital.
“We are capitalizing on current capital market conditions, which present attractive debt financing options for strong, well-managed companies,” said Joseph Vumbacco, chief executive officer and vice chairman, in a statement. “We believe our plan represents a prudent and efficient use of our balance sheet capacity.
An HMA press statement noted that the company will recapitalize its balance sheet through $3.25 billion of new senior secured credit facilities. The facilities, which are pre-payable without penalty, consist of a seven-year $2.75 billion term loan and a $500 million six-year revolving credit facility, which will be secured by a portion of the company’s assets. HMA’s $400 million of 6.125 percent senior notes, and $588 million of convertible subordinated notes, will remain outstanding, added the company. However, the 6.125 percent senior notes will be secured “pari passu” with the senior credit facility.
Banc of America Securities is acting as financial advisor to HMA. Chairman William Schoen explained in a press release that the company has decided to shift its sources of capital away from equity and toward debt, because the debt capital markets currently comprise a more attractive source. He also said the one-time dividend is a way of returning excess capital to shareholders.
On news of the refinancing, Moody’s Investor Services assigned a Ba2
rating to the proposed senior secured credit facilities. Moody’s also assigned HMA a corporate family rating of Ba3. The outlook for the ratings is stable, according to Moody’s.