Vicar CFO sees $150 million junk bonds, IPO commencing concurrently

By Paul A. Harris

St. Louis, Mo., Nov. 12 - Vicar Operating Inc. plans to raise up to $340.4 million when it executes a junk bond pricing and an initial public offering later this month.

Thomas W. Fuller, chief financial officer of Vicar and of its parent corporation, Veterinary Centers of America, told Prospect News that the company plans to bring the bonds and the stock to market "concurrently."

"They don't have to close together, but together makes sense," Fuller said Monday.

Pricing on the bonds has been tentatively set for Nov. 19. Sole bookrunner is Goldman Sachs & Co. Leonard Green & Partners is the company's financial sponsor.

The company expects to raise $182 million from the sale of common stock, based on 14 million shares at an assumed IPO price of $13 per share, and $150 million from the sale of its senior subordinated notes due 2008 (B3/B-). If the greenshoe on the IPO is exercised, the company will receive a further $25.4 million.

Proceeds, according to Fuller, will go to repay approximately $104.2 million of the company's credit facility.

They will also be used to repay approximately $47.8 million of the outstanding principal amount of its 15.5% senior notes due 2010 at a redemption price of 110% of the principal amount, for an aggregate of $52.6 million, plus accrued and unpaid interest.

Fuller said that the company would exercise calls on the notes that are immediately redeemable, and call the remaining notes in September 2002.

Asked to comment about bringing concurrent debt and equity offerings to market, given conditions that some commentators are referring to as recessionary, Fuller said that present economic conditions, as well as the catastrophic events of Sept. 11 are having negligible impact on the veterinary laboratory and hospital business, which began operating in 1986.

"Nothing is recession proof, but the business is certainly very recession-resistant," he said.

"With regard to what happened on Sept. 11, we were hit a little bit in the lab business and the hospital business, that week, but the last week of September we came back very strong. We came in close to or above our target-range for that month.

"In a recession or times of high anxiety people tend to bond with their families and their pets, even more," Fuller added. "We have not seen, in the past, and do not foresee much impact from recession."

Fuller further stated that the same dynamics that render health care a defensible sector also come to play in Veterinary Centers of America's laboratory and hospital operations.

"A big part of our business is our laboratory division," Fuller said. "$43 million of our EBIDTA comes from our laboratory division.

"The labs are similar to a human lab, but operate exclusively for animal hospitals, he added. "So on the lab side, we compare to human labs, although we think we compare better because our margins are higher.

"We think we have a much more attractive market, given the lack of regulation and government involvement, and government and third party payers."

Fuller also commented that VCA's hospital operations compare somewhat to rural hospitals for human patients. And the veterinary hospitals, like the labs, operate with less regulation and less reliance upon third party payers.

He said that the Vicar Operating Inc. bond and stock deal was in planning before the terrorist attacks of Sept. 11, and that the present markets seem opportune, with regard to the deal.

"The bankers have told us that the market has improved significantly since Sept. 11, and is probably somewhat better than it was right before Sept. 11," he said.

End

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