Bain Capital zeroes in on Healthscope’s $1.4bn debt pile

Healthscope is Australia’s second-biggest private hospital operator. Picture: Ian Currie

Private equity firm Bain Capital could be about to execute its third major recapitalisation plan for a well-known Australian company, with source suggesting it has sharpening its focus on Healthscope in recent weeks.

DataRoom understands that a significant number of Healthscope’s lenders that agreed to freeze interest payments for the hospital operator from March until mid-May are going to sell those loans shortly.

Under the terms agreed, the lenders did so on the proviso that they would have the right then to sell their debt once that period is over.

The understanding is that many of the 20-odd lenders to Healthscope that are owed $1.4bn do not want to place the healthcare provider into voluntary administration because of the political sensitivity around what is the nation’s second-largest hospital operator.

Among Healthscope’s lending syndicate are Asian and European lenders such as ING, and Australia’s top four banks.

Boston-based private equity firm Bain Capital is getting closer to the situation, sources say, and is poised to strike when large debt parcels come up on offer or may do a deal with the entire syndicate in one go.

So far, only small portions of debt has traded, mainly from Asian lenders who refused to sign the standstill, and it has sold for about 40c in the dollar.

Among buyers are David Di Pilla’s HMC Capital, the parent company of one of Healthscope’s major landlords. HMC was understood to have purchased between $50m and $100m.

Should Bain buy the majority of the loans, it would gain control of Brookfield’s Healthscope, which is effectively insolvent, and can then call the shots about its future.

Bain took this strategy when it led a consortium to recapitalise Australia’s Accolade Wines, which was earlier owned by The Carlyle Group, and it was the buyer of Virgin Australia when Virgin entered voluntary administration amid the pandemic.

Meanwhile, more chatter is filtering into the market about the sale process run for Healthscope by owner Brookfield through adviser Moelis for which bids are due within the next fortnight.

After giving the process a swift rebuff, the nation’s largest private hospital operator, Ramsay Health Care, has shown interest in taking on a selection of Healthscope hospitals. But its terms are that it gains them for a nominal amount and probably on the provision that the government intervenes where insurers are forced to offer more reimbursement for their services.

The hospitals that Ramsay is believed to be prepared to take include those co-located with its own facilities.

The Healthscope assets that would appeal to Ramsay include Melbourne Private, Prince of Wales Private Hospital in Sydney, and the Gold Coast Private ­Hospital.

The Australian Competition & Consumer Commission would need to offer a concession for the deal on the grounds that the alternative is a collapse of Healthscope.

Ramsay is weighing a sale of its European hospital business through Goldman Sachs and is expected to update investors at the Macquarie Australia investment conference this week.

Consortiums are also forming to operate Healthscope hospitals.

Catholic not-for-profit hospital operators St Vincent’s and St John of God are weighing a move to take on some facilities, as is the ­Epworth Hospital Group, a not-for-profit group controlled by the Epworth Foundation, established by the Methodist church.

However, all are said to be interested on the condition that they pay rents at a 10-15 per cent discount to the current rate.

It’s widely agreed that some of Healthscope’s 44 hospitals are not financially sustainable and would need to be closed, after Healthscope has already ended its deal with the NSW government to run Northern Beaches Hospital as part of a public-private partnership recently.

Brookfield paid $4.4bn for Healthscope in 2019 and sold its properties for about $2bn.

Since then, escalating staff costs and limited funding increases from its insurance partners have placed further pressure on the loss-making business in the wake of the pandemic from 2020, and it has defaulted on rents and has been unable to meet debt obligations.