DaVita to Refinance Existing Debt - Analyst Blog

DaVita HealthCare Partners Inc. DVA recently announced a number of endeavors to refinance its existing debts. These include the entry into new senior secured credit facilities of $5.5 billion and the issuance of up to $1.75 billion aggregate principal amount of unsecured debt. The $5.5 billion credit facility comprises a $1 billion term loan A and a $3.5 billion term loan B.

The proceeds from the $1.75 billion debt and new term loans will be used to repay the 6.375% senior notes worth $775 million that are scheduled to expire in 2018, refinance the existing credit facilities and for general corporate purposes.

DaVita has been successful in reducing its indebtedness in the first quarter of 2014. The debt burden of the company decreased 0.6% to $8.36 billion as of Mar 31, 2014 from $8.42 billion as of Dec 31, 2013. As a result, the debt-to-capital ratio improved to 64.2% from 65.5% at year-end 2013. Although the latest debt issuance might apparently increase DaVita's debt level, the company's intention to utilize the proceeds to repay earlier debts should actually aid in deleveraging its portfolio.

However, debt expense of DaVita has risen over the past few years. It increased 32.8% in 2011, 19.7% in 2012 and 49% in 2013, all on a year-over-year basis. The first quarter also witnessed a 0.5% increase in its debt expense from the year-ago quarter. The above-mentioned issuance implies a further increase in debt expense, which will pressure margin expansion.

DaVita currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the healthcare services space include Almost Family Inc. AFAM, Amedisys Inc. AMED and RadNet, Inc. RDNT. While Almost Family sports a Zacks Rank #1 (Strong Buy), Amedisys and RadNet have a Zacks Rank #2 (Buy).