August 28, 2019 / 6:58 PM / 25 days ago

Envision US$5.45bn TLB sinks as US healthcare debate rages

NEW YORK, Aug 28 (LPC) - Physician outsourcing provider Envision Healthcare has seen the value of its US$5.45bn term loan B sink throughout August as weak earnings and political uncertainty around the US healthcare sector weigh on investor appetite, investors and analysts told Refinitiv LPC.

The TLB was quoted at 76.75-77.75 on Tuesday, down from 84.5-85.5 recorded on August 6, a banking source said.

As primary contenders seeking the Democratic nomination prep for the 2020 presidential election in the US, healthcare has moved to the forefront of the debate with many proposing to expand the role of government in the system or introduce an entirely government-run system and eliminating private health care coverage.

Frontrunner Joe Biden has proposed improving upon the existing Affordable Care Act, while progressive hopeful Elizabeth Warren has backed Medicare for All. Self-described democratic socialist Bernie Sanders wants to eliminate private insurance and is in favor of a universal system. All three are leading recent polls in the race for the Democratic nomination.

The discussion has brought the issue into the spotlight even further and the lack of consensus is only making investors more wary.

An August 27 report from Fitch Ratings on loans of concern added Envision and Patterson Medical Supply’s US$863.9m outstanding loan to its watch list.

"Envision, like other healthcare companies, has been pressured by uncertainty over the outcome of political efforts to cut medical bills," Fitch said in its report.

KKR’s takeover of Envision for US$9.9bn last September was one of the largest leveraged buyouts since the financial crisis. Syndication of the loans took place concurrently with that of other buyout financings that included a US$13.5bn debt package backing the Blackstone Group's purchase of financial data company Refinitiv and US$7.6bn in loans and bonds for Carlyle's purchase of Akzo Nobel’s specialty chemical business in the fall of 2018.

Envision's takeover was financed with a US$5.45bn loan that priced at 375bp over Libor. Credit Suisse led the financing on the loan, which is due 2025. The loan included one of the most aggressive documentation packages, particularly regarding adjustments to Ebitda, according to Covenant Review.

“Of the four done in that September range of last year that’s the one that has been hammered the most,” said one analyst of Envision’s loan.

Over the summer, average bids for healthcare loans have slipped to 96.5 as of Tuesday, down from 97.25 at the beginning of August, according to Refinitiv LPC data.

Companies already on Fitch’s watchlist include Millennium Health and Medical Depot, with US$600m and US$545m outstanding in loans respectively.

Business development companies NexPoint Capital and Business Development Corporation of America (BDCA) both hold positions in the loan as of June 30, according to BDC Collateral.

NexPoint holds US$1.88m and BDCA has a US$3.8m position representing 1.77% and 0.14% of their respective portfolios, BDC Collateral data shows.

Both firms have the loan marked at 76.78-78.2. (Reporting by David Brooke and Aaron Weinman. Editing by Michelle Sierra and Leela Parker Deo.)

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