Community Health boosts liquidity, maturity profile in notes exchange

By Devika Patel

Knoxville, Tenn., Dec. 3 – Community Health Systems, Inc. completed a “highly successful” exchange offer for notes that improved its maturity profile and liquidity, allowing the company to pay off its revolver, and eliminated its 2019 and 2020 maturities, with only $1 billion of notes coming due in 2021 and very few notes maturing in 2022.

“[After some acquisitions], the company’s leverage started to increase and the company started a spin and divestiture program subsequent to that to try and deleverage itself,” executive vice president and chief financial officer Thomas J. Aaron said at the Bank of America Merrill Lynch 2019 Leveraged Finance Conference in Boca Raton, Fla., on Tuesday.

“We recently announced that we did an exchange transaction on the 2022 senior unsecured notes, announced on Oct. 29, so that transaction basically has the impact of moving a significant portion of the unsecureds out to 2028 and $700 million of secureds to 2027,” he said.

The company paid off its revolver and is now using its ABL facility for liquidity.

“We did a $500 million tack-on that we used to take out our revolver, and that also had some first lien covenants on it that are now gone,” Aaron said.

“We are using our ABL.

“We’ve paid down with the proceeds our ABL.

“We’ll be using that for liquidity.”

The company’s maturity profile and liquidity have now improved from these transactions.

“It significantly improved our maturity profile,” Aaron said.

“It’s also strengthened our liquidity model,” he said.

The company has taken care of several maturities, and management believes the exchange transaction was “highly” successful.

“The 2019 and 2020s, those are taken care of,” Aaron said.

“The revolver, which was a 2021 maturity, is now gone, so 2021 is $1 billion of first lien notes and the 2022 is down to a stub.

“We had 91% participation.

“We felt that was highly successful,” he said.

“We’ve got the maturities cleared up.

“From an interest-cost standpoint, we really only had to step up from 6 7/8% to 8% on $700 million that went to first lien.

“We think that is very manageable, and it’s put us in a good position,” Aaron said.

On Nov. 19, company subsidiary CHS/Community Health Systems, Inc. issued $699,924,000 of new 8% senior secured notes due 2027 and $1,700,394,000 new 6 7/8% senior unsecured notes due 2028 as early settlement of an exchange offer for any and all of its $2,632,000,000 of existing 6 7/8% senior unsecured notes due 2022.

As of the early tender deadline, 5 p.m. ET on Nov. 13, about $2,400,461,000, or 91.2% of the outstanding amount, of old notes were tendered in the exchange offer.

The issuer offered up to $700 million of 8% senior secured notes due 2027 and up to $1,932,000,000 of 6 7/8% senior unsecured notes due 2028 in the exchange offer.

The company expected to issue $700 million of the 8% secured notes regardless of the participation level. The amount of unsecured notes issued was based on participation.

The company exchanged the notes on a par-for-par basis, with the first $700 million of new notes issued being the 8% secured notes and the balance of the consideration coming in the form of unsecured notes.

Had only the institutional holders of the 82.8% of existing notes who agreed to exchange their notes participated in the exchange by the early deadline, Community Health expected that the total consideration per $1,000 of notes would be $321.22 of 8% secured notes and $678.78 of 6 7/8% of unsecured notes.

Had all noteholders participated in the exchange by the early deadline, Community Health expected that the total consideration per $1,000 of notes would be $265.97 of 8% secured notes and $743.03 of 6 7/8% of unsecured notes.

Because the $700 million of 8% notes would be issued to settle the early tenders and because there would be an early participation premium of $50 of new notes, holders who tendered their notes for exchange after the early deadline received $950 of 6 7/8% unsecured notes for each $1,000 principal amount.

Holders also received accrued interest to the relevant settlement date in cash.

The offer expired at midnight ET on Nov. 27.

Community Health is a Franklin, Tenn., hospital company.

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