Australia’s ailing number two hospital operator Healthscope, which has been the subject of takeover talks for some time, has finally taken active steps to ensure its survival.
The private equity arm of Canadian investment giant Brookfield, which acquired Healthscope in 2019, has offered to hand over the reins to its syndicate of lenders and asked them to appoint their own nominees to the board.
This move was seen by Healthscope as the most logical “solvent restructure” allowing the hospitals within the group to remain open.
There are currently 642,000 patient admissions across the 38 hospitals in Healthscope’s operation annually.
If a company willing to acquire the debt-riddled entity – which owes $1.6 billion – cannot be found the entity’s hospital network will enter receivership which could result in an administrator disposing of assets at fire sale valuations.
Given that Healthscope has been listing towards receivership for some time, a number of would-be acquirers have been eyeballing parts of the business that interest them.
Australia's biggest private hospital operator, Ramsay Healthcare (ASX: RHC) has hired Goldman Sachs to monitor Healthscope.
While HealthCo Healthcare & Wellness REIT - an investment vehicle run by David Di Pilla’s ASX-listed HMC Capital (ASX: HMC) - has expressed interest in acquiring Healthscope’s operations, so too have St. John of God, St Vincent’s and Epworth Healthcare.
It’s understood that a ‘forbearance agreement’ with Healthscope’s 30 lenders – designed to stave off costly and potentially damaging receivership – ran out on Monday.
Given that eight of the mostly offshore lenders didn’t participate in the original agreement, it remains to be seen what the next move will be.
With HMC Capital’s Di Pilla having abandoned earlier interest in Healthscope, the market is now waiting to see if how Ramsay will proceed.
A fire sale of various parts, perhaps along state lines, in the future, may be one way Ramsay could pick off the jewels in Healthscope’s operation, and leave the rest.
Meanwhile, undisclosed sources suggest that Healthscope and Brookfield have received interest from [other] buyers for the business as a whole and for individual hospitals.
Healthscope’s $1.6 billion debt has traded for between 30-50 cents on the dollar with distressed debt buyers including Canyon Partners, Elliott Management and Polus Capital.
This suggests that an acquirer would likely pay about $300 million to $400 million if it wanted to buy the whole company.
Brookfield acquired Healthscope for $5.7 billion just before the COVID pandemic, which stopped elective surgeries for months.
Healthscope has a cash balance of $110 million, which management says is enough to keep the business operating through an ownership change.
What happens next depends on the individual decisions of different lenders within the syndicate.
