According to Standard & Poor’s, 2010 is on pace to match the annual total dividend-related financings during the 2005-2007 “Golden Age” of private equity. A recent Wall Street Journal article, citing S&P, reports that companies have already sold $40.3 billion in dividend-related financing loans and bonds this year as compared to $56.2 billion and $55 billion in 2006 and 2007, respectively.
The latest in this wave of new dividend-related financings was announced by Hospital Corporation of America ("HCA"), the Tennessee-based hospital operator that was acquired for approximately $33 billion in 2006 by a leveraged buyout consortium led by KKR, Bain Capital and Merrill Lynch & Co. HCA plans to pay a $2 billion dividend to its equity investors, which will be financed, in large part, through the sale of high yield bonds maturing in 2021 and yielding to bondholders a dividend rate of 7.75%.
The deal is structured as a “holding company dividend recapitalization,” a structure made popular during the pre-credit-crunch LBO boom, but disappearing after the crisis. HCA plans to create a newly formed Delaware company, HCA Holdings Inc., to issue the bonds. The new unsecured bonds will be funded by HCA’s operations and structurally subordinated to existing HCA debt.