March 15, 2019 / 8:56 AM / 10 days ago

Take two for Healthscope buyout loan

* Loans: Hospital operator returns with A$2.15bn leveraged loan

By Prakash Chakravarti

HONG KONG, March 15 (LPC) - Australian hospital operator Healthscope is back in the leveraged finance market with a A$2.15bn (US$1.52bn) loan backing its second take-private buyout in less than a decade.

Seven underwriting banks are seeking commitments from banks after launching senior syndication last week. The multi-tranche senior loan – one of the country’s biggest ever buyout loans – backs the planned A$4.35bn acquisition by Canadian investment firm Brookfield Capital Partners.

The latest big-ticket financing in the booming Asia Pacific leveraged loan market is expected to be well received due to Healthscope’s robust underlying healthcare business, its leading position in Australia and New Zealand, rarity value and track record with lenders.

Healthscope was the subject of an LBO in 2010 after TPG Capital and Carlyle Group took it private at a valuation of A$2.7bn. The two private equity firms then relisted it in 2014 and exited their remaining stakes through block trades in 2015, raising over A$4bn from their share sales.

“Healthscope provides a rare opportunity for both the financial sponsor as well as banks to take exposure to the healthcare sector in Australia at this kind of scale,” a loan banker in Singapore said.

“It has a proven track record and with public hospitals in Australia carrying a 95% occupancy rate, Healthscope’s future is quite promising.”

The seven underwriting banks are seeking to reduce their risk and a wider launch into general syndication is expected in April. Healthscope’s board recommended Brookfield’s offer on February 1, and shareholders are due to vote on the deal in May.

EXTRA DOSE

Research analysts expect strong earnings growth for Healthscope, which will help support the hefty debt load. Jefferies forecasts Ebitda of around A$405m for the year ending June 30 2019, and A$451m and A$502m respectively for the following two years.

Morningstar estimates Healthscope will produce Ebitda of A$413m and A$455m for the fiscal years ending June 30 2019 and 2020, respectively.

For the full year ending June 30 2018, Healthscope generated Ebitda of about A$314m, according to Refinitiv data.

The estimates on forward earnings put the leverage multiple on the latest loan at around 5.20x–5.31x.

This is higher than the gearing on a A$1.7bn financing completed in October 2010 to finance Healthscope’s original LBO, which came with total leverage of 4.7x Ebitda and 4x senior debt.

A total of 30 lenders, including 17 mandated lead arrangers and bookrunners, participated in the A$1.5bn five-year senior portion, which was among the first high-profile LBO financings from Asia after the 2008 global financial crisis.

After Healthscope’s relisting in July 2014, the company raised a A$1.295bn three-year post-IPO loan with seven banks. In February 2015, Healthscope also raised another A$690m four-year public-private partnership club loan for its Northern Beaches Hospital.

CHANGES TO LIQUIDITY

Much has changed in the Australian leveraged finance arena since Healthscope’s 2010 buyout, notably around the composition of capital providers.

Some European banks, including Barclays, BNP Paribas, Credit Agricole and Societe Generale have resumed lending in the last 18 months after scaling down or shutting their operations after the European financial crisis.

Australia is seeing a proliferation of institutional investors focussing on loans. Last week Metrics Credit Partners launched a new retail loan fund and Gresham Partners became the latest entrant to target the non-bank lending market.

These funds are giving private equity firms more financing options including newer unitranche loans to back buyouts. An A$660m six-year unitranche loan is currently in the market for TPG’s LBO of Australian pet store chain Greencross, the fifth unitranche loan seen since the structure first appeared in Australia in August 2017.

The Term Loan B product, available in US or Australian dollars, has also gained traction among sponsors, borrowers and Australian investors.

Last week KKR wrapped up a A$1.21bn-equivalent financing for its proposed take-private of Australian accounting and business services software firm MYOB Group. The deal included US and Australian dollar first-lien TLB loans for around A$938m as well as a A$145m second-lien loan.

Healthscope’s all-senior loan is a good lending opportunity for banks, which are facing increasing competition for assets from institutional investors. It is also attractive as lenders joining the deal are exempt from withholding taxes regardless of jurisdiction.

Reporting By Prakash Chakravarti; editing by Tessa Walsh and Steve Garton

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