Thursday, October 2, 2008

Jack Bovender to Parachute from Infected HCA

Long time CEO Jack Bovender announced his retirement effective December 31. He will remain Executive Chairman of the hospital company for another year. Two years ago a consortium of private investors took the company private. Investors include Bain Capital, Kohlberg Kravis Roberts., Merrill Lynch Global Private Equity, and the founding Frist family. In HCA’s SEC filings they refer to the transaction as “the Recapitalization.”

HCA’s latest 10-Q and annual report reveal the burdens of playing with the big money boys:

1. Debt of $27 billion, of which $5.5 billion is subject to variable rates of interest
2. Annual interest expense of $2.2 billion (a $1.4 billion increase from pre-purchase levels)
3. Management fees of $440 million
4. Taxes paid to Uncle Sam fell from $730 million in 2005 to $316 million in 2007.
5. Derivative investments of $1.6 billion in their insurance subsidiary. The quality is level 2 or level 3. This includes $652 million in auction rate securities backed by student loans.

The largest private hospital company could soon line up for the $770 billion Treasury bailout. Is that influencing Jack Bovender’s retirement? If he steps down now, will his golden parachute be insured? The firm didn’t have their best quarter due to the growing number of uninsured patients.

Times are tough all around, but KKR affiliate HCA will get help for their clogged arteries. Uninsured patients will have to wait.

The economy may be sicker, systemically infected from dice rolling CEO’s. At Treasury's junk investment redemption counter, HCA could join two failed affiliates of another private equity firm, The Carlyle Group. Carlyle Capital Corporation leveraged borrowed money to load up on mortgage backed securities. While the public fund failed, their rollup could be dramatically improved by an Uncle Sam bailout.

SemGroup, an energy distribution company, declared bankruptcy due to hedging. That practice was not listed as primary activity of the firm.

Who knew hospitals and gas pipeline companies bet so regularly at the Wall Street casino? Will the Treasury buy underwater forward looking contracts and help SemGroup reorganize? How deep is the infection, and is the Senate plan capable of stemming, much less curing, the disease?