HCA Inc. – a wholly owned subsidiary of HCA Holdings, Inc. HCA – recently proposed to issue senior notes worth $500 million, which are scheduled to mature in 2026. These notes carry an interest rate of 5.875% and will trade interchangeably with the 5.875% senior notes worth $1 billion issued in Nov 2015.
The proceeds from the issuance will be used for general corporate purposes.
HCA Holdings’ interest expenses have been declining at a four-year CAGR of 4.5%. Additionally, it declined 4.5% in the first nine months of 2015. The latest debt issuance of HCA Holdings will require it to pay interests worth $29.4 million annually. Thus, the issuance is likely to weigh on the interest expenses to some extent as well as limit margin expansion. Nevertheless, owing to its solid operational performance the company generates enough funds to service debt uninterruptedly.
The company’s balance sheet demonstrates that its debt burden has increased in the first nine months of 2015 compared with that at year-end 2014. Prior to the last two issuances, the insurer’s debt portfolio consisted of debts with an average rate of interest of 5.4% and average life of 6.1 years. The latest issuance, when added to the company’s debt portfolio, is expected to increase its debt burden and affect the debt-to-capital ratio adversely. These will, in turn, weigh on the company’s balance sheet strength.
HCA Holdings currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the hospital industry are Mednax Inc. MD, Adeptus Health Inc. ADPT and Acadia Healthcare Company, Inc. ACHC. While Mednax and Adeptus sport a Zacks Rank #1 (Strong Buy), Acadia Healthcare holds a Zacks Rank #2 (Buy).
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