Biggest Portfolio Companies Remain Heavily Leveraged

  • Debt levels remain high
  • HCA, Kinder Morgan do well
  • Five of top 10 are public again

One of the most successful companies is also one of the largest: HCA Inc., the big hospital operator. Taken private in November 2006 by a group led by Bain Capital Inc., Kohlberg Kravis Roberts & Co. and Merrill Lynch Global Private Equity, the Nashville, Tenn.-based company went public in March 2011, and has managed to whittle its debt load down to 4.4x EBITDA, compared to 6.2x EBITDA the year it went private. Sources told Thomson Reuters LPC this month that HCA is asking lenders to extend a minimum of $500 million of the company’s existing term debt by up to four years.

At the other extreme, First Data Corp. has actually lost ground, its debt load growing to 8.0x EBITDA from 7.8x EBITDA at the end of 2007, when it was taken private by KKR. The Atlanta-based payment processor has been hit by rising network fees, a result of financial reform legislation, even though its revenue has been growing.

Broadcaster Clear Channel Communications Inc. had the heaviest debt burden in our roundup, 10x EBITDA as of Dec. 31. The San Antonio-based company, backed by Bain Capital Partners and Thomas H. Lee Partners, announced a complex, $1.25 billion debt deal in February in which an indirect subsidiary would float notes and proceeds would be used to repay some of the parent’s debt.

And the gas pipeline company Kinder Morgan is probably the strongest among these 10 large companies. As of year-end, the Houston company, which was taken private in May 2007 by a group including Goldman Sachs Capital Partners, American International Group, The Carlyle Group and Riverstone Holdings, had a debt load that was only 0.8x EBITDA. And earlier this year, Kinder Morgan engineered a controversial acquisition of in-state rival El Paso Corp., spinning off some of El Paso’s unwanted assets to a group led by Apollo Global Management LLC.

A word about our methodology: We used Thomson Reuters data to identify the largest deals by U.S. sponsors. These mostly occurred in the 2006-2008 period. We excluded deals that were primarily about real estate, as well as certain foreign deals where the targets do not file documents with U.S. regulators and those in which the target had been sold to a strategic buyer. We then used Securities and Exchange Commission documents to determine long-term debt and EBITDA (in many cases adjusted EBITDA) for the companies, for the most recent filing year, typically Dec. 31, 2011, and for the first year after they went private, when they first took on their LBO debt.

One other company that we excluded was RJR Nabisco, a $30 billion deal from 1989. That transaction, completed by KKR and immortalized in the book Barbarians At The Gate, still shows up as the No. 3 buyout deal in history.