Tuesday, November 9, 2010

PEU's Stick HCA for Another Dividend Bleeding

KKR and Bain Capital will bleed HCA for another $2 billion in 2010.  This is on top of $2.25 billion paid out earlier this year.  Bloomberg reported debt will fund the latest dividend.

HCA, the largest U.S. hospital chain, said today it will sell $1.53 billion in high-yield debt to finance the payout to its private-equity owners.
Private equity underwriters (PEU's) don't call this bleeding.  That's too crass.  PEU's prefer monetization.  Owners expect to make three times their initial investment in HCA. 

Interest costs are included in hospital cost reports.  Over time, this will impact reimbursement from Medicare and Medicaid.  Patients and Uncle Sam will pay.

Health reform has PEU's dealing hospitals.  What's happening with HCA could be Caritas Christi in four years.  Will Cerberus have exercised Catholic identity buyout by then?

Update 11-14-10  Offering debt for dividends is PEU sleight of hand, given later IPO proceeds are marketed as "reducing debt."  This masks prior bleedings.  Take Carlyle Group's Booz Allen Hamilton.  Dividends, totaling $5.73 per share, gave Carlyle free shares.  They paid $5.40 per share to acquire BAH  The public will pay 3.3 times what Carlyle did in August 2008, $18 per share for 14 million shares.  Proceeds will be used to "pay down debt"  Is it the original debt or debt used to pay PEU's handsome dividends?

Update 5-24-11:  PEU's took a final vial of blood from HCA with a $181 million fee for terminating their management agreement.