Community Health says 'no urgency' on debt moves, but timing right

By Paul Deckelman

New York, March 13 - Community Health Systems Inc. has recently been active in the capital markets, doing a $1 billion junk bond deal last week, while at the same time tendering for some of its outstanding bonds, working with lenders to extend some of its term-loan debt and entering into a new credit facility to take out other existing debt.

But the company's chairman, president and chief executive officer, Wayne T. Smith, said on Tuesday at an investment conference that in making that flurry of moves now, "There was no urgency. Most of our debt came due in 2014 and 2015. We just decided that it was time, and the markets were pretty good for us to move forward."

Smith told attendees at the Barclays Capital 2012 Global Healthcare Conference in Miami: "I could talk all afternoon about debt refinancing. [...] We've been in the [debt] market a lot lately."

The big Franklin, Tenn.-based hospital operator last week brought a $1 billion offering of 8% senior notes due 2019 as an add-on to the original $1 billion tranche it sold last November. That quickly shopped deal via subsidiary CHS/Community Health Systems, Inc. priced last Wednesday at 102.5 to yield 7.447% after being upsized from an original $750 million.

The company said proceeds would be used to fund the partial tender of its 8 7/8% senior notes due 2015, the latest in a series of transactions to whittle down the gigantic debt issue, which is still widely considered by many in the high-yield market to be a key bellwether issue.

After selling $3 billion of the notes back in June 2007, the company used open-market purchases to bring the outstanding amount down to about $2.78 billion by last fall and then cut another $1 billion via a tender offer funded by the original tranche of the 8% notes. Earlier this month, it announced a further tender offer for $700 million of the remaining $1.78 billion of the bonds, subsequently enlarging the offer to $850 million. The early tender deadline is midnight ET on March 20, with an overall April 4 deadline.

In the bank debt market, Smith said, "Basically, all we are doing is extending the maturities on our debt.

"We've made very good progress in terms of doing this - we've not had a lot of difficulty."

In January, Community Health extended about $1.6 billion of term-loan debt to January 2017 from the original maturity date of June 2014, upping pricing on the extended loan to Libor plus 350 basis points from the original non-extended pricing of Libor plus 225 bps, with no Libor floor on either interest rate.

It returned to the market barely days later and last month ultimately lined up a $1.5 billion credit facility due October 2016, after upsizing that agreement from $1.2 billion. The new facility consists of a $750 million revolving credit line, upsized from $700 million originally, and a $750 million term loan A, upsized from $500 million. Pricing was at 250 bps over Libor, with a 50 bps unused fee on the revolver. Proceeds were slated for repaying an existing revolver and paying down not previously extend term-loan borrowings.

The company is once more back in the market, now seeking to extend at least $750 million of term-loan debt to January 2018 from July 2014. Market sources envision pricing on the extended debt at Libor plus 375 basis points, versus non-extended pricing of Libor plus 225 bps.

The company had some $8.78 billion of long-term debt as of the end of 2011, down $26 million from year-end 2010 and down $62 million from year-end 2009.

Smith told the conference attendees that Community Health was paying a weighted average interest rate of about 7.1% on its debt. Some 87% of the company's debt is at fixed rates, although with the ongoing refinancing and extensions, it projects about 72% to 77% at fixed rates for this year.

The company's year-end debt-to-capital ratio was about 79%, and debt stood at 4.8 times adjusted EBITDA, a gradual reduction from 5.9 times at the end of 2008.

Smith said that the health care industry faces much uncertainty, but also said that demographics, such as the aging of the "baby boom" generation, were favorable. He further said that extending health insurance to another 32 million people under the Obamacare mandate would boost revenues and bring the company's debt ratio down notably by 2014, assuming "we just continue operating like we are."

Sara Rosenberg contributed to this report

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