HCA Holdings Inc. said it will pay a $2.50-a-share special dividend, which would be its second of the year, providing a rich payout to shareholders, including the private-equity owners that still hold much of the hospital operator’s stock.
The total value of the new dividend will be around $1.15 billion, analysts said, on top of the earlier total of $982 million, or $2 a share, disbursed to shareholders in February. Also on Tuesday, the company said it would offer new debt valued at around $2 billion, but it ended up issuing about $2.5 billion. The debt will be used in part to fund the dividend.
In 4 p.m. composite trading Tuesday, shares of HCA fell 3% to $30.85 on the New York Stock Exchange.
Bain Capital and KKR & Co. each own around 20% of HCA’s shares; an entity owned by those firms and affiliates of the company’s founding Frist family owns around 61% of HCA. The hospital operator was taken private in 2006 and went public again in March 2011.
An HCA spokesman said the company seeks “to manage the maturities of our indebtedness and maintain a strong balance sheet while providing a return to our shareholders. Favorable conditions in the high-yield bond market have enabled us to achieve these goals in recent financings.” KKR and Bain declined to comment.
Analysts said the sizable dividend is unusual in the hospital industry, and likely reflects HCA’s ownership, but also that it is spending relatively less on acquisitions than some other companies. The timing is also probably tied to concerns that tax rates investors pay on dividends may rise next year, they said. Also, robust credit markets are fueling such deals.
“Private-equity guys do a better job getting companies to return cash than public holders,” said John Ransom, an analyst with Raymond James & Associates.
HCA said its ratio of debt to adjusted earnings before interest, taxes, depreciation and amortization at the end of September was 4.1 times, and would have been 4.3 times adjusted for the impact of the dividend and related financing. It was 4.5 times Ebitda at the end of 2011.
Jason Gurda, an analyst with Leerink Swann, said it is an inexpensive time to take on debt, and he said he isn’t worried about the additional new issue by HCA, which isn’t the most highly levered in the hospital industry. Still, he said, “would I like to see the company over a period of time de-lever a bit? Yes.”
The announcement came as HCA also previewed its third-quarter earnings, which it said will be net income of around $360 million, or 78 cents a share. In the year-earlier period, the company posted earnings of $61 million, or 11 cents a share, which were affected by $256 million, or 49 cents a share, in losses on retirement of debt.
The company revealed higher admissions figures, which were “strong,” said Chris Rigg, an analyst with Susquehanna Financial Group.
This article originally appeared in the October 17, 2012 edition of The Wall Street Journal.