0902997851

HCA $5.7 Billion Bond Sale Turns Into Windfall for Investors
Linh - Thảo , tân bình, 0902997851
By Mark Pittman
Nov. 22 (Bloomberg) -- HCA Inc.'s $5.7 billion sale of below-investment-grade bonds has become the biggest bonanza for investors in at least three years.
The securities rose as high as 104 cents on the dollar, cutting yields by 70 basis points since the Nov. 8 sale, according to Deutsche Bank AG prices. The drop in yield is the biggest for new bonds of more than $1 billion since before 2003, according to data compiled by New York-based research firm FridsonVision LLC.
HCA, the biggest U.S. hospital company, sold the securities at 100 cents on the dollar with yields higher than on its existing debt to make sure there was demand for the largest junk bond offering in 17 years. Proceeds will help pay for the $33 billion takeover of the Nashville, Tennessee-based company by a group led by Kohlberg Kravis Roberts & Co.
``It was obvious that the bonds were going to trade up pretty substantially, given where they priced it,'' said Michael Difley, who bought the debt from underwriters led by Citigroup Inc. for the $200 million he manages at the Mountain View, California-based fixed-income unit of American Century Investments.
HCA sold $1 billion of 9.125 percent senior secured second- lien notes due in 2014, $3.2 billion of 9.25 percent second-lien debt maturing in 2016 and $1.5 billion of so-called toggle notes with a 9.625 percent coupon due in 2016. The toggle notes have ``pay-in-kind'' interest for the first five years, meaning HCA can make coupon payments with additional debt instead of cash.
`Deal of the Year'
HCA was rated BB- by Standard & Poor's and B2 by Moody's Investors Service. Debt ranked below BBB- by S&P and Baa3 at Moody's is considered non-investment grade.
The gains on the bonds have handed investors a $228 million profit this month, according to data compiled by Bloomberg. Yields on new bonds fall by less than 10 basis points on average when trading begins, according to FridsonVision. A basis point is 0.01 percentage point.
The HCA sale was the ``deal of the year'' for investors, according to bond research firm KDP Investment Advisers Inc. in Montpelier, Vermont. The returns of more than 4 percent, including accrued interest, compare with 0.65 percent for junk bonds on average in the same period, according to Merrill Lynch & Co. indexes.
Citigroup originally offered a 9.25 percent yield on the eight-year notes and between 9.375 and 9.5 percent on the toggle notes, KDP said in a Nov. 8 report. HCA's existing 6.5 percent notes due in 2016 yielded 9.6 percent on Nov. 6. Increasing demand for the new bonds allowed underwriters to cut the yields by about 12.5 basis points.
Left on Table
If the debt had been sold at current prices, HCA and its new owners, New York-based KKR and Merrill Lynch, Boston-based Bain Capital and HCA co-founder Thomas F. Frist Jr., would have saved $389 million in interest over the term of the notes.
``We're pleased with the way the offering went,'' said HCA spokesman Ed Fishbough. He declined to elaborate.
As an underwriter, ``you want the deal to go well, but this one went a little too well,'' said Martin Fridson, who led Merrill Lynch's high-yield strategy group until he left in 2003 to start FridsonVision. ``There was a lot of money left on the table there.''
Spokesmen for Citigroup, KKR, Merrill Lynch and Bain declined to comment.
The size of HCA's bond sale was surpassed a week later when Austin, Texas-based Freescale Semiconductor Inc. sold $5.95 billion of bonds at 100 cents on the dollar. The debt, which financed the purchase of the company by private equity firms led by Blackstone Group Inc., are unchanged, according to Deutsche Bank prices.
Citigroup Underwriting
Bonds sold by Citigroup, the second-biggest high-yield underwriter in 2006 with $164 billion, don't typically perform as well as HCA's securities, according to FridsonVision.
Fridson examined 360 deals in the past four quarters, totaling $129 billion. Yields on those bonds typically decline 7.6 percent compared with the entire U.S. high-yield market in the four weeks after they are sold.
Citigroup bonds, on average, increase by 4 basis points, the second-worst performance of any underwriter. The worst performers were securities sold by UBS AG, where yields rose 10 basis points on average. Credit Suisse's were the best, narrowing 18.6 basis points on average.