Dec 6 (IFR) - Healthcare operator HCA took advantage of a
welcoming high-yield bond market this week to finance another
special dividend to shareholders - its third dividend since
going public last year.
The company is hardly alone in looking to provide dividend
payouts ahead of potential tax hikes in 2013. At the moment,
dividends are taxed at 15%, but this rate could return to
upwards of 35% if the breaks are not extended next year.
"With tax rates on dividends set to double for many earners
in 2013, several companies are trying to get special dividends
in under the wire," Erin Lyons, Citigroup credit strategist,
said in a report.
Among publicly traded high-yield companies, special
dividends are more likely to come from high-quality credits with
large controlling shareholders.
HCA's largest shareholders are Bain Capital and KKR,
part of the group that bought the company in 2006 and took it
public five years later. Combined with HCA management, they own
roughly 60% of total shares.
This will be HCA's third special dividend payment since
going public, with a cumulative total of nearly US$3.2m paid
Bond investors don't mind the use of proceeds for HCA. The
company runs a very conservative balance sheet, has done a good
job at delevering, and is a leader in its industry, all factors
which allow it easy entry into the market.
In fact, the US$1bn 8.25-year bullet senior unsecured bond
offering, rated B3/B-, apparently could have been increased
substantially on the back of a very strong order book, but the
company preferred not to do so.
Citigroup, BofA Merrill, Barclays, Credit Suisse, Deutsche
Bank, JP Morgan, Morgan Stanley, SunTrust Robinson Humphrey and
Wells Fargo led the deal, which priced at 6.25% at par, on the
tight end of its 6.375% area guidance.
PIK YOUR SPOTS
Further down the credit spectrum, PIK toggle dividend
issuance returned this week after taking a break in November.
New Academy Finance, the parent of sporting goods retailer
Academy Sports, launched a US$400m five-year non-call one senior
PIK toggle offering on Thursday, upsized to US$500m, through
Goldman Sachs, Credit Suisse and KKR joint books.
PIK toggle dividend issuance was significant in late
September and October, when a host of private companies,
including Petco, Jo-Ann Stores, BWAY Parent, Emergency Medical
Services and PPDI, priced these riskier deals before the market
came under pressure.
PIK toggle bonds, which allow a company to pay interest with
more debt in certain situations, had not been seen in any
significant amount since before the credit crisis, when they
occurred frequently in LBO transactions.
Pricing on Academy's Caa1/CCC+ rated deal was expected on
Thursday afternoon, with proceeds being used to fund an upsized
US$500m dividend. The deal is talked at 8.00%-8.25%. KKR
acquired a majority stake in the company last summer for roughly
US$2.3bn, committing more than 40% of equity.
That fits with the pattern of PIK toggle issuance already
seen this year. The dividend offerings that have emerged in the
fourth quarter, sponsors say, were either from vintage LBOs that
have delevered through the past few years and can accommodate a
slight increase in debt, or LBOs from 2010 or 2011 that were
financed at lower debt levels and higher equity due to a fragile
macro climate at the time.
Sponsors say that for both types of deals, leverage is being
brought back up to levels that a companies can bear on their
balance sheets, and that these deals have been restricted to
those companies that can handle them.
Elsewhere, Tops Holding is looking to pay a
US$100m dividend to equity sponsor Morgan Stanley Private Equity
through a US$460m five-year non-call 2.5 senior secured note.
Proceeds will also be used to repay debt. BofA Merrill and
Morgan Stanley are joint books on the B3/B+ rated deal, with
pricing expected on Friday. Tops Markets, a regional supermarket
chain, was taken private in 2007 in a transaction valued at