Molina Healthcare cut ’44 convert debt, lowered debt/cap ratio in Q4; entered bridge loan to backstop ’20 converts

By Paul Deckelman

New York, Feb. 13 – Molina Healthcare, Inc. moved during the recently ended 2017 fourth quarter to cut the outstanding balance on one of its issues of convertible debt – and lined up financing to allow it to cover a second convertibles issue should those holders decide to cash their notes in.

“Enhancing our balance sheet and instilling capital discipline” are key parts of the Long Beach, Calif.-based managed healthcare provider’s plan, its president and chief executive officer, Joseph M. Zubretsky, told analysts on a Tuesday conference call following the release of its results for the 2017 fourth-quarter and full-year periods ended Dec. 31.

Exchange deal cuts converts balance

“We took a number of steps in this regard during the fourth quarter,” he said, including the repurchase in December of a portion of Molina’s 1.625% convertible senior notes due 2044, in exchange for equity.

Under the terms of the synthetic exchange transaction announced on Dec. 7, the company agreed to repurchase from a limited number of noteholders some $141.275 million of its then-outstanding $302 million of the 2044 converts originally sold in September 2014 and simultaneously issue those holders an aggregate of just over 2.596 million of Molina’s New York Stock Exchange-traded common shares.

“This transaction enabled us to lower our total debt-to-capital ratio by approximately 5 percentage points,” Zubretsky declared, “while also allowing us to release for general purposes approximately $157 million of restricted cash” that had been earmarked for the redemption of that convertible paper.

The CEO also announced that the company had around the same time entered into a bridge loan “that will provide funding in the event that our $550 million face-value convertible notes, due in February 2020, are presented to us.

“While we think that it is unlikely that those notes will be presented to us in the near future, we concluded that it was important to mitigate this risk.”

According to Molina’s most recent 10-Q filing with the Securities and Exchange Commission in November, covering the third quarter and nine-month periods ended Sept. 30, 2017, the 1.125% convertible notes due in 2020 are convertible entirely into cash; the stock-price trigger for those notes is $53.00 per share. The notes met this trigger during the third quarter, and therefore are now convertible into cash and are reported in the current portion of the company’s long-term debt.

Junk deal, revolver boost debt

According to the balance sheet data released with the fourth-quarter earnings, Molina’s total debt as of the end of the quarter stood at $1.97 billion, consisting of about $1.32 billion of long-term debt and $653 million of current-portion debt.

That total debt figure was down marginally from the roughly $2.1 billion on the balance sheet at the end of the third quarter, but was up from about $1.45 billion at the end of the 2016 fourth quarter and fiscal year.

In May, Molina ventured into the junk bond market to sell $330 million of new 4 7/8% senior notes due 2025. Proceeds from that quickly shopped offering, which priced at par on May 22, were earmarked for refinancing the 2044 convertible notes.

As Zubretsky noted, the sock-for-converts synthetic exchange transaction done in December freed from restricted-cash status some of the proceeds from the junk deal that otherwise would have been reserved for repurchasing those notes.

According to the 10-Q filing, the 2044 converts are convertible partially into cash. The issue’s stock-price trigger is $75.51 per share, which it had not reached during the third quarter. However, it did reach that mark during the subsequent fourth quarter and has spent most of the current first quarter well above that trigger price.

According to the 10-Q filing, “on contractually specified dates beginning in 2018, holders of the 1.625% convertible notes may require us to repurchase some or all of such notes. In addition, beginning May 15, 2018 until August 19, 2018, holders may convert some or all of the 1.625% convertible notes. Because of these put and conversion features, the 1.625% convertible notes are reported in current portion of long-term debt.”

Besides the two issues of convertible notes and the 4 7/8% notes sold in May, Molina’s capital structure includes $700 million of 5 3/8% senior notes due 2022 that it sold in 2015.

Additionally, in January of 2017, the company entered into a new $500 million unsecured five-year revolving credit facility, replacing an existing $250 million five-year facility it had lined up in 2015. As of Sept. 30, it had drawn $300 million from the facility; $6 million of outstanding letters of credit further reduced availability to $194 million. The company said that it was in compliance with all financial and non-financial covenants under the facility.

The company’s balance sheet as of Dec. 31 showed cash and equivalents of about $3.19 billion, down from $3.93 billion at Sept. 30, though up from $2.82 billion a year earlier.

CEO Zubretsky meantime told the analysts on Tuesday’s call that even after the December transaction, “our total debt ratio remains too high, and we will continue to delever and improve our overall capital structure to achieve our targets.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.