Community Health Systems Is in Talks to Extend Nearly $2 Billion in Debt
November 18 2017 - 2:23PM
Dow Jones News
By Soma Biswas
Community Health Systems Inc., one of the largest publicly
traded hospital chains in the U.S., is in talks with a group of
bondholders led by Franklin Resources Inc. to extend nearly $2
billion in bonds coming due in 2019, according to people familiar
with the matter.
While Community Health bondholders are talking to the company to
try to extend debt maturities, other investors are shorting its
bonds, betting that the company will have to restructure sooner
rather than later, according to a person familiar with the
matter.
The company has been trying to chip away at $15 billion in debt,
which it took on partly to fund acquisitions such as the $7.3
billion purchase of Health Management Associates Inc. in 2014. At
the same time, patient volumes have been declining at its rural and
suburban hospitals.
The company's options are narrowing after having sold dozens of
hospitals for billions of dollars and extended certain debt
maturities.
Community Health still has the $1.9 billion unsecured note
coming due Nov. 15, 2019, in which Franklin holds a big position.
While it isn't due for another two years, the debt will be
considered current a year ahead of that date, possibly triggering a
default.
A spokeswoman for Franklin declined to comment. A spokeswoman
for Community Health didn't immediately respond to a request for
comment.
The company's third-quarter earnings report on Nov. 1 delivered
the latest blow to it shares and bonds. The company's 6.875% notes
due 2022 fell more than 3 points to 70 and its shares fell 46
cents, or 7.7%, to $5.44 a share on the day of the release. The
6.875% notes have since sold off further to 62.5 Friday, according
to MarketAxess. For the third quarter ended Sept. 30, Community
Health reported double-digit declines in operating revenue and
adjusted earnings before interest taxes depreciation and
amortization of 16.3% and 28.8%, respectively, to $3.7 billion and
$331 million.
Community Health has already this year paid down $1.6 billion in
debt with proceeds from the sale of 30 hospitals. As a result, the
company brought debt down to $13.9 billion from $15 billion in the
first three quarters of this year. And it is in talks to sell even
more hospitals, with net revenue of at least $2 billion, according
to a recent company presentation.
Community Health has also been working through a typical menu of
options that highly leveraged companies have employed in today's
robust high-yield markets to push out its debt maturities. For
instance, in March the company sold $2.2 billion in secured notes
due in 2023, using the proceeds to pay down bonds and loans due in
2018.
Pushing out debt due in 2019 will only provide a short-term
reprieve to the hospital operator since the company faces billions
of dollars in debt maturities every year from 2020 to 2023.
The company's stock price has dwindled from over $22 a share in
November 2015 to $4.15 a share on Friday. Indeed, given that the
company's $13.9 billion in debt is eight times Ebitda, debt
investors argue there is little value left in the company's
equity.
Community Health is in talks to swap the 2019 unsecured notes
for new notes secured by the company's assets, one of the people
familiar with the matter said. Such a transaction will be tricky,
however, since the company's ability to issue new secured debt is
limited to around $1 billion, according to one bondholder. For the
company to be able to issue more secured debt in an exchange, the
company may have to seek permission from its lenders to waive a
covenant in its revolver loans that limits the amount of secured
debt with the same priority level as the revolver in a
restructuring, the bondholder noted.
If the company were to try to refinance the 2019 bonds in the
market with new unsecured notes, investors would demand exorbitant
interest rates on par with the current yield levels on its bonds,
the bondholder noted. For example, the 8% notes due in 2019 were
yielding 16.64% Friday, according to MarketAxess.
Write to Soma Biswas at soma.biswas@wsj.com
(END) Dow Jones Newswires
November 18, 2017 14:08 ET (19:08 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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