DaVita Healthcare Partners Inc. DVA recently issued 5.00% senior notes worth $1.5 billion, which are scheduled to mature in 2025. The amount of the notes was raised from $1.25 billion decided earlier.
The proceeds from the issuance will be used to repurchase or redeem the outstanding 6.625% senior notes that are scheduled to mature in 2020 and to fund the related transaction fees and expenses. The remaining proceeds will be used for general corporate purposes such as future acquisitions and share buybacks. Additionally, DaVita commenced a cash tender offer to buy the outstanding notes.
The latest debt issuance of DaVita will require it to pay interests worth $75 million annually. The company generates enough funds through its solid operational performance that should help it service the debt uninterruptedly.
DaVita’s debt expenses have been increasing at a four-year CAGR of 22.6%. These include interest expenses that increased over these years before decreasing in 2014. The above-mentioned issuance will likely weigh on this metric to some extent, thereby limiting margin expansion.
The company’s balance sheet demonstrates that its debt burden has increased at a four-year CAGR of 18.6%, including a 3% year-over-year rise in 2014. DaVita’s debt-to-capital ratio has improved 330 basis points year over year to 61.3% at the end of 2014. However, the latest issuance, when added to its debt portfolio, is expected to increase the debt burden and affect the debt-to-capital ratio adversely, thereby weighing on the company’s balance sheet strength.
DaVita currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the healthcare space include Addus HomeCare Corp. ADUS, Almost Family Inc. AFAM and Chemed Corp. CHE. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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