At Least One Mega-Deal Remains Healthy

The mega-sponsors of hospital operator HCA Inc. have agreed to pay themselves a hefty dividend of $1.75 billion as the Nashville, Tenn.-based company prepares to report solid fourth quarter and year-end operating results, according to regulatory filings.

Such a payout would return nearly a third (32 percent) of the approximated $5.5 billion of sponsor-backed equity invested in the company at the time of its acquisition.

The strong health of HCA—acquired in 2006 by Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity for about $32 billion—stands in contrast to other peak-period mega-deals, many of which continue to be battered by the liquidity crisis. “Our organization has performed well in these uncertain economic times,” said Richard Bracken, HCA’s chairman and CEO, in the regulatory filing.

Indeed, a number of other large LBOs in more cyclical markets are not faring so well. Energy Future Holdings Corp., acquired for $44 billion in the largest LBO ever, is now struggling under the weight of its own balance sheet. The power company, taken private in 2007 by GS Capital Partners, KKR and TPG, already held one debt swap last year and is reportedly negotiating for another one to alleviate some of its liquidity pressures.

Casino operator Harrah’s is another mega deal that’s suffered since the economy collapsed and consumers began holding onto their discretionary dollars. Apollo Management and TPG acquired Harrah’s in January 2008 for approximately $30.7 billion (including the assumption of debt). In regulatory filings, the company has expressed concern about its ability to service its debt obligations.

HCA, however, anticipates posting revenues for the fourth quarter of 2009 of approximately $7.6 billion, up nearly 5 percent from the same quarter in 2008. And although net income for the quarter ended Dec. 31, 2009 is expected to decline nearly 22 percent to about $216 million, adjusted EBITDA will likely hit north of $1.3 billion, up from about $1.2 billion the year before, the company said in a filing.

The full-year numbers are even stronger. Revenues for full-year 2009 are expected to hit $30.1 billion, up 6 percent from 2008’s $28.4 billion. Net income is slated to hit about $1.1 billion, a 57 percent spike from 2008, while adjusted EBITDA is expected to see a year-over-year increase of about 20 percent to $5.5 billion.

The dividend, which was payable Feb. 5, was to be funded through HCA’s asset-based and general revolving credit facilities, as well as by cash on hand. The company’s estimated leverage ratio at Dec. 31, 2009 was 4.7x EBITDA. On a pro forma basis, to reflect the $1.75 billion distribution, HCA’s estimated leverage ratio would be 5.0x EBITDA. In comparison, its leverage ratio was 6.4x EBITDA as of Dec. 31, 2006, the company said in a regulatory filing.