HCA ends year with 4.81 times leverage, $1.3 bln borrowing capacity

By Paul Deckelman

New York, Feb. 3 - HCA Holdings Inc. ended the fourth quarter and calendar year 2010 with a ratio of debt to adjusted EBITDA of 4.81 times and over $1 billion of credit facility borrowing capacity. But the Nashville-based hospital operator's balance sheet was not as healthy as it could be, showing a more than $2.5 billion rise in total debt as well as reduced borrowing availability versus year-earlier levels, incurred largely to fund several distributions to the privately held company's shareholders in 2010.

During a conference call following the release of the results for the quarterly and full-year periods ended Dec.31, the company's executive vice president and chief financial officer, R. Milton Johnson, said that the year-end leverage ratio had risen from 4.69 times at the end of 2009 and noted that rise was attributable to borrowings the company undertook during the year to fund a total of $4.3 billion of shareholder distributions.

Busy year for balance sheet

HCA did three such distributions: a $1.75 billion cash dividend announced in late January 2010, funded by borrowings from its senior secured revolving credit facility and cash on hand, a $500 million distribution in mid-May paid from revolver borrowings and a $2 billion year-end distribution paid via more revolver borrowings as well as the proceeds of a $1.525 billion issue of 7¾% notes due 2021, which priced at par on Nov. 10.

The November bond deal was one of several balance-sheet transactions the big hospital operator undertook during the year. On March 2, the company priced a $1.4 billion offering of 7¼% senior secured first-lien notes due 2020. The issue, which was upsized from the originally planned $1 billion, priced at 99.095 to yield 7 3/8%, with the proceeds used to repay a portion of the company's term loan debt.

In April, the company amended and extended the maturity on $2 billion of term loan-B debt, pushing its scheduled expiration back to March 2017 from the original November 2013 deadline, while increasing the pricing on the loan to 325 basis points over Libor from 225 bps over Libor originally.

Debt balance, leverage up

HCA ended the year's third quarter on Sept. 30 with a leverage ratio of 4.52x and projected that pro forma for the borrowings needed to fund the end-of-year distribution, this would rise to 4.88x, although the actual year-end ratio of 4.81x was somewhat below that.

Because of the increased borrowings to fund the dividends, HCA ended the year with total debt of $28.225 billion, consisting of $592 million of current debt and $27.633 billion of long-term debt. That was up from $26.079 billion at the end of the third quarter ($696 million of current debt and $25.383 billion long-term) and up still further from $25.67 billion at the end of 2009 ($846 million current portion and $24.824 million of long-term debt).

Johnson said that HCA had year-end borrowing availability under its credit facility of $1.314 billion. That was down from $2.157 billion at the end of the third quarter and from $3.181 billion at the end of 2009. Cash and equivalents stood at $411 million at the end of 2010, up from $377 million at the end of the third quarter and from $312 million a year earlier.

Johnson and the company's chairman and chief executive officer, Richard M. Bracken, did not entertain the customary questions from analysts at the end of their formal presentations during the conference call, citing the "quiet period" provisions in effect as a result of HCA's having filed last year with the Securities and Exchange Commission for a roughly $4 billion initial public offering of shares.

Performance metrics improve

Bracken declared, "Despite a challenging overall economy, including high unemployment levels and uncertainty regarding health care reform, we performed well in the year."

HCA, which operates 164 hospitals and 106 freestanding surgery centers, including eight hospitals and nine free standing surgery centers operated through equity-method joint ventures, reported fourth-quarter revenues of $7.736 billion, up 1.7% from $7.605 billion a year earlier.

Cash revenues, consisting of reported revenues less a provision for doubtful accounts - i.e., bad debts from uninsured or underinsured patients, making it a key hospital industry operating metric - totaled $7.161 billion. That was up 3.6% from $6.912 billion a year earlier. Net income attributable to HCA totaled $283 million, up 31% from $216 million in the 2009 fourth quarter. Adjusted EBITDA rose 7.8% year over year to $1.447 billion from $1.343 billion in the prior year.

On a full-year basis, revenues totaled $30.683 billion, up from $30.052 billion for 2009, while cash revenues totaled $28.035 billion, up 4.7% from $26.776 billion a year earlier. Net income attributable to the company was $1.207 billion, up 14.5% from $1.054 billion in 2009. Adjusted EBITDA totaled $5.868 billion, up 7.2% versus $5.472 billion in 2009.

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