Vanguard Health Systems Inc., the hospital operator controlled by Blackstone Group, plans to raise as much as $661 million in an initial public offering to help its owners recoup their investment.
Vanguard will sell 25 million shares at $21 to $23 apiece, according to a regulatory filing today with the U.S. Securities and Exchange Commission. The sale’s managers, Bank of America Corp. (BAC) and Barclays Plc (BARC), have the option to sell an additional 3.75 million shares as an over-allotment option.
Vanguard borrowed money to pay its owners a $447 million dividend in February, said Vicki Bryan, a bond analyst at Gimme Credit LLC in New York. While the Nashville, Tennessee-based company said it will use the proceeds from the sale to pay down some of that debt, Bryan said Vanguard will be forced to replace that with bank loans.
“If the debt goes down, it will only go down temporarily,” Bryan said in a telephone interview. “The company doesn’t generate enough cash flow to cover” commitments it made when it bought Detroit Medical Center in December. Vanguard paid $368 million in cash and agreed to invest as much as $850 million more, a Detroit Medical statement said.
HCA Holdings Inc., also based in Nashville, held a record $3.79 billion private equity-backed IPO in March in which it sold 126 million shares at $30 a share, the top of its proposed range. Like Vanguard, HCA used the proceeds for debt incurred to pay a $2 billion dividend to private-equity owners in November 2010.
“Investors who buy into Vanguard will be paying for a dividend they didn’t receive,” Bryan said.
Vanguard also made a payout to investors of about $300 million last year, Bryan said.
“The IPO will be another big payday,” she said. At $22 a share, the company said it could raise $589 million, which it would use to pay down that debt, according to today’s filing.
Vanguard owns and operates 26 hospitals in five states, as well as three health insurance plans and two surgery centers in California, the filing said. It had $3.38 billion in revenue in the year ending June 30, 2010. Funds led by New York-based Blackstone bought the company in 2004 for $1.75 billion, according to Bloomberg data.
Blackstone owns two-thirds of the company. At the end of the sale, current investors will still hold a majority of the voting rights, Vanguard said.
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