Community Health touts debt deal, divestitures to better balance sheet

By Paul Deckelman

New York, March 22 – Community Health Systems, Inc. has recently been active in the credit markets and active as well over the last several years in pursuing an ambitious slate of divestitures and using proceeds from the latter transactions to improve its overall debt and leverage picture.

“We’re reducing debt and improving leverage and improving the profile of the company, especially free cash flow, with these type of divestitures, ” the Franklin, Tenn.-based hospital operator’s president for financial services and chief financial officer – the aptly named Larry Cash – told attendees on Wednesday at the 27th annual Oppenheimer healthcare conference in New York.

In 2016, the company spun 38 hospitals in 16 states off into the new Quorum Health Corp., generating net proceeds of $1.2 billion, sold its share of a Las Vegas hospital joint venture for $445 million and generated almost another $300 million of gross proceeds from several other such transactions completed last year.

For this year, he said the company has already inked agreements to sell 20 hospitals, has several other deals currently in the works and anticipates further transactions later in the year, with much of the proceeds expected to go to debt pay down.

As of Dec. 31, Community Health had some $15 billion of debt on its balance sheet.

Cash told the conference participants that the only debt due this year is $242 million due on an assets receivable securitization program maturing in November, “which we will refinance sometime between now and then.”

Going into this year, there was some $2.58 billion slated to come due in 2018 – $700 million of 5 1/8% senior secured notes due next August, a $435 million receivables facility maturing in November and $1.445 billion of term loan debt due in December.

However, he noted that the company recently refinanced the secured notes and the term loan debt, selling $2.2 billion of 6¼% senior secured notes due 2023. That quick-to-market transaction priced at par on March 7 after having been upsized from an originally announced $1.75 billion. Originally, the company planned to only refinance $1.02 billion of the term loan, but upsizing the new bond deal gave it enough proceeds to take out the whole term loan obligation as well as the 2018 notes.

It announced a tender offer for those notes on March 2, which is slated to expire at 11:59 p.m. ET on March 29, with any notes not taken out via the tender offer scheduled to subsequently be called for redemption.

Cash said that with most of the 2018 debt now taken care of, “we’ll consider other maturities, which we’ll generally take in sequence, so we’ll start working on the 2019s later this year, or early 2018, for the ones that are due in the latter part of 2019.”

The CFO said the company enjoys “good cushions on our interest coverage,” easily fulfilling bank covenant tests with an 18% overall interest coverage cushion and a 12% senior secured coverage cushion.

“That will get better as we pay down senior secured debt and do the more than $1.5 billion of divestitures” the company still has scheduled for the remainder of the year.

He said “we expect to have all, or most of our [divestiture] program done by the third quarter of 2017, and there could be some more coming later – we continue to get good interest in that and we’re very focused, we continue to focus on our debt.”

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