Thursday, March 3, 2011

HCA IPO: Ready to Go

After lingering for ten months, KKR and company are ready to pull the trigger on HCA's latest IPO.  In the interim investors bled HCA for $4.25 billion, partially financed by issuing $1.5 billion in debt..  WSJ reported:

Bain Capital, Kohlberg Kravis Roberts, Bank of America Corp. and the brother of former Senate Majority Leader William Frist are each in line to make nearly $3 billion from $1.2 billion investments in the 2006 leveraged buyout of hospital chain HCA Holdings Inc.

The gain—about 250% over five years that were trying for the economy and health-care companies—would amount to one of the largest ever from a private-equity deal.
 I almost choked when I read how Bain, KKR and BOA spun the IPO.

Public investors also grew more optimistic about hospital shares, anticipating that the Obama health plan will keep a lid on hospitals' costs for uninsured patients. That helped set the stage for the initial public offering, expected next week.
Come 2014 the "lid on hospital costs" will close somewhat.  Until then costs should soar as virtually everybody pulls their markers from the table.  That includes employers, the government and individuals no longer able to participate in an "out of control" financing system.

CBO scoring of Obama reform assumes 6 million people will go off Medicaid and CHIP from 2011-2013.  The exact opposite is happening.  States find legions of new citizens in need of Medicaid and CHIP.

What source of rising healthcare costs is never mentioned?  Interest expense associated with buyout deals.  KKR's purchase of HCA and CHS' buyout of Triad Hospitals added over $2 billion in annual interest costs to the system.

Reform assures more hospital buyouts, many involving stressed safety-net hospitals forced to sell out on the cheap to their for-profit brethren.  How many safety net hospitals will survive three years of waiting for Obamacare to ride to the rescue?  It remains to be seen.

As for investors winning big, here's another clue, courtesy of HCA's revised articles of incorporation:

Increase the number of authorized shares of our common stock from One Hundred Twenty-Five Million (125,000,000) to One Billion Eight Hundred Million (1,800,000,000)

Also, HCA owns insurance divisions in Bermuda and the Cayman Islands.  Sweet.

Bain Capital and KKR will win big next week on the promise of health reform.  Government policy drives huge profits for America's robber barons, mostly in ways unseen by the public. Champagne?  I smell a PEU celebration (PEU stands for private equity underwriter).

Update 3-10-11:   HCA completed its IPO.

Update 5-24-11:  PEU's milked HCA with a $181 million fee for terminating their management agreement.