NEW YORK, Jan 6 (Reuters) - Hospital operator Community Health Systems Inc is launching a new roughly $4 billion credit to back its acquisition of rival Health Management Associates Inc (HMA), sources told Thomson Reuters LPC.
A bank meeting is set for 11 a.m. ET Wednesday in New York City. Lender commitments are due January 17.
Community Health is planning a $2.26 billion term loan D and an extended term loan sized at up to 50 percent of the company's existing term loan C, or roughly $1.7 billion. The new extended term loan will be fungible with the new term loan D.
The new term loan D will fund the acquisition of HMA, and the new extended term loan will refinance Community Health's existing term loan C.
The term loans are expected to mature in seven years.
Credit Suisse and Bank of America Merrill Lynch are joint physical books. Bookrunners on the transaction include Citigroup, Goldman Sachs, JP Morgan, RBC, SunTrust, UBS and Wells Fargo.
Community Health is acquiring HMA for an aggregate purchase price of $7.5 billion plus a contingent value right of up to approximately $270 million, according to a Community Health presentation.
Community Health's road to acquire HMA has been bumpy and closely watched, due to activism from HMA's largest shareholder, private investment management firm Glenview Capital Management.
Glenview initially called the Community Health proposal a "floor value" for investors. In August 2013, HMA shareholders ousted HMA's previous board of directors and replaced them with a slate of nominees from Glenview.
Nonetheless, in November 2013, Glenview confirmed its intention to vote its shares in favor of the Community Health proposal. Glenview's backing followed weak third quarter results at HMA.
The new board of directors also affirmed its support of the Community Health transaction in November 2013.
The acquisition is subject to approval of HMA stockholders holding 70 percent of HMA's outstanding shares.
The Community Health/HMA transaction follows hospital operator Tenet Healthcare Corporation's approximately $4.3 billion acquisition of Vanguard Health Systems as changes in healthcare are pressuring reimbursements for hospital services, driving increased need for economies of scale and diversification in revenue streams at hospitals.
"Everybody's looking to control the increase in the cost of care," said Moody's Senior Vice President Dean Diaz. "If a person needs to go to an outpatient surgery center versus in the hospital, if the hospital owns part of that ambulatory surgery center, it keeps the revenue within the system."
Community Health and Credit Suisse declined to comment. HMA did not return calls for comment.