DaVita sets term B pricing at low end of talk; HealthSouth ups term loan, cuts spread

By Sara Rosenberg

New York, June 8 - DaVita Inc. once again revised pricing on its massive term loan B, this time officially finalizing spreads at the low end of previous talk, while maintaining the ability for pricing to step down by 25 basis points under certain circumstances.

Also in the primary, HealthSouth Corp. increased the size of its senior unsecured term loan and reduced pricing on the tranche on strong investor demand that led to oversubscription of the deal.

DaVita announced to accounts Wednesday morning that final pricing on its $2.65 billion seven-year term loan B will be set at Libor plus 225 basis points - the low end of previously revised Libor plus 225 basis points to Libor plus 250 basis points talk, according to a market source.

Furthermore, the term loan B contains a step down to Libor plus 200 basis points, subject to certain conditions, the source said.

In addition, 101 soft call protection for one year was added to the B loan as well.

Just last week, the market had assumed final pricing on the tranche to be Libor plus 250 basis points, with a step down to Libor plus 225 basis points.

"I heard they had a solid book at 250....waited a few days...market got better....got better pricing," the source remarked.

Original price talk on the tranche at launch was Libor plus 200 basis points.

The deal was said to be having a hard time filling up at the initially proposed rate because, recently, lower-priced large-sized deals had been trading disappointingly at levels just through par.

DaVita's $3.15 billion credit facility (B1/BB-) also contains a $250 million six-year revolver and a $250 million six-year term loan A, with both tranches priced at Libor plus 200 basis points. Spreads on these loans were also flexed up during syndication - with the original price talk having been Libor plus 175 basis points.

JPMorgan is the sole bookrunner on the deal, and Credit Suisse First Boston is involved in the transaction as well.

Proceeds from the credit facility along with proceeds from an already completed $1.35 billion bond offering will be used to help fund the $3.05 billion cash acquisition of Gambro Healthcare's U.S. assets and to refinance debt.

The two-tranche bond deal priced in March. The offering included $500 million of eight-year senior notes (B2/B) priced at par to yield 6 5/8% and $850 million of 10-year senior subordinated notes (B3/B) priced at par to yield 7¼%.

Net proceeds from the bond offering along with available cash were already used by the company to repay all outstanding amounts under the term loan portions of its existing credit facilities, including accrued interest.

Following the acquisition, the company's leverage ratio will be in the 5x to 5.2x EBITDA range, but DaVita hopes to reduce that ratio to around 3x to 3.5x in the next three to four years using anticipated strong cash flows.

Completion of the acquisition is subject to customary closing conditions including Hart-Scott-Rodino antitrust clearance.

DaVita is an El Segundo, Calif., provider of dialysis services.

HealthSouth makes changes

HealthSouth upsized its in-market senior unsecured term loan to $200 million from $150 million and reverse flexed pricing on the tranche to Libor plus 500 basis points from Libor plus 550 basis points, according to a market source.

Call protection provisions were left unchanged at non-callable for one year and then callable at 102 in year two and 101 in year three, the source added.

Both new and existing lenders were approached on the new term loan, which is being issued to investors at par, and the conference call launch held at the end of May was such a success that early commitments started flying into the book almost immediately - making it somewhat unsurprising that a size increase and a price decrease were possible.

J.P. Morgan Securities Inc. and Citigroup Global Markets Inc. are joint lead arrangers and joint bookrunners on the deal, with J.P. Morgan the left lead.

Proceeds from the term loan will be used to partially refinance the company's $245 million 6.875% senior notes due June 15.

In March, HealthSouth closed on a new $715 million credit facility consisting of a $315 million term loan B priced at Libor plus 250 basis points, an $85 million synthetic letter-of-credit facility priced at Libor plus 250 basis points, a $250 million revolver priced at Libor plus 275 basis points and a $65 million letter-of-credit facility priced at Libor plus 275 basis points. Proceeds from that amended and restated credit facility were used to refinance debt and beef up liquidity.

HealthSouth is a Birmingham, Ala.-based provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare services.

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