Come Monday, the private hospital operator’s owner will consider its options unless the standstill agreement is extended. Buyers are circling but receivership is also on the cards.
Things are changing rapidly in the battle to buy private hospital operator Healthscope, with one major contender announcing an earnings downgrade today.
Healthscope has been struggling under a debt pile now valued at $1.4 billion. On Monday 12 May a “standstill agreement” organised back in March ends and the company’s Canadian owner, Brookfield will decide whether to sell.
David Di Pilla’s funds manager HMC Capital – landlord to about half of Healthscope’s 38 hospitals – has been the major player up to now but it was heavily sold today after the earnings downgrade – shares dropped to $4.76 this morning but steadied back to $4.84 – a 6.3% sell-off.
HMC and main rival Bain Capital have been buying parcels of Healthscope debt but, according to The Australian’s Data Room column, there is little appetite among the candidates to buy the operator as a whole.
One possibility is that HMC bids only for the hospitals where it owns the real estate. Another is that another party buys all Healthscope’s debt cheaply – it’s currently selling at about 45c in the dollar – which puts the operator in a better position to pay its rent.
A third option is that smaller buyers buy individual hospitals – Pacific Equity Partners, and Ramsay Health Care are believed to be interested, but only if the assets were offered at a nominal price.
Ramsay is also believed to be wanting the federal government to intervene where private health funds are forced to offer more reimbursement. It is also believed to be interested in hospitals co-located with public facilities – Melbourne Private, Prince of Wales Private in Sydney, and Gold Coast Private.
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HMC today warned that if the current forbearance period is not extended beyond the end of this week, receivership is a distinct possibility. There is a risk some hospitals, from among the 11 HMC bought outright in 2023, could close or have operations “significantly curtailed”.
Just a month ago, HMC said it was in a strong position to takeover Healthscope, saying it had $500 million to $600 million available and would not require much more backing to get the deal done.
“I think at the right price that will make sense; it’s still got great infrastructure characteristics, it’s still an essential piece of the private healthcare landscape in Australia, and we think with the appropriate capital structure, it can be a viable business again,” Mr Di Pilla was quoted as saying at the time.
Since then Bain Capital, a Boston-based private equity firm, has been rumoured to be poised to buy the majority of Healthscope’s remaining debt, effectively giving it control of the company.
This is a familiar strategy for Bain, who did the same thing when Virgin Australia entered voluntary administration during the covid pandemic.
Catholic not-for-profits St Vincent’s and St John of God are understood to be considering a consortium to make a bid, as is the Epworth Hospital Group, established by the Methodist Church.
Both consortiums are looking for a 10-15% discount on rent in order to maintain interest in bidding, according to The Australian.