Brookfield to launch Healthscope sale process: sources

Brookfield purchased Healthscope in 2019 for $4.4bn. Picture: iStock

Brookfield is moving to launch a sale process for Healthscope, say sources, in a quest to snooker aggressive offshore hedge funds looking to gain control of one of the country’s most valuable healthcare businesses for a discounted price through the back door.

Sources have suggested that the sale process by the North American private equity firm

may swiftly be brought together in the coming weeks.

It could see the country’s second largest private hospital operator fall into the hands of its larger rival Ramsay Health Care or Pacific Equity Partners, which owns smaller rival Healthe Care, or a not-for-profit hospital operator such as St Vincent’s Healthcare or St John of God.

It comes after some of Healthscope’s financiers in its lending syndicate of about 25 banks are set to sell their loans in its $1.6bn-odd debt pile imminently after failing to agree to a standstill for interest payments until May.

The understanding is that offshore financiers that account for just under one third of the debt have refused to sign up for the arrangement that buys the embattled Healthscope more time to come up with a rescue plan after it breached its debt covenants early this month.

DataRoom understands that the lenders are being swamped with approaches from interested buyers looking to pick up the loans at a discount, mostly heavyweight hedge funds out of the US.

While sources did not identify the hedge funds, they may be among those that capitalised the Australian-based GenesisCare when it entered Chapter 11 bankruptcy in the US before resuming normal trade.

They include Canyon Partners and Avenue Capital Group.

Separately, Anchorage Partners may look.

Oaktree Capital Management spearheaded the GenesisCare refinancing, but Oaktree is majority owned by Brookfield, calling into question what role – if any – it may play.

Bain Capital was also involved and is known to be keen to gain control of Healthscope, with it currently assembling a team of healthcare executives.

Sources believe that sale documents or an information memorandum could shortly be placed in the market by the Moelis-advised Brookfield, as it faces a race against time to get a deal done before distressed debt is sold.

It would also open a data room for prospective suitors if it has not done so already.

Brookfield’s approach on Healthscope has changed considerably since last year, say sources, when it tried to strong arm lenders and health insurers into taking a haircut on rents in order to ensure its survival and pressuring lenders to negotiate.

It has since appointed restructuring expert Tino La Spina as chief executive, replacing Greg Horan, and is taking a much more co-operative approach and looking for a sustainable solution that will keep its reputation as one of Australia’s top quality investors intact.

The move by Brookfield could throw plans by the Macquarie Capital-advised HMC Capital into turmoil, at a time when HMC’s managing director David Di Pilla has confirmed his business interests are trying to form a consortium to buy Healthscope to protect the rents of one of his company’s listed satellites that is a landlord to Healthscope while also creating a sustainable future for the company.

The understanding is that he has already sounded out Healthscope’s lenders about acquiring debt for between 15c and 40c in the dollar.

But sources believe that his proposal faces major obstacles in that HMC would be heavily conflicted.

He would be working as the manager of landlord HealthCo, which is trying to preserve earnings and stem any cuts to rents, and his private equity arm that would own Healthscope as the operator looking to get the best deal from its landlord as possible.

The situation is playing out in the lead up to the federal election and at a time when new requirements could be placed on health insurers to increase payments to private hospitals.

Brookfield purchased Healthscope in 2019 for $4.4bn and sold its real estate assets at the time for about $2bn to help fund the transaction fending off competition in a bidding war from BGH Capital.

However, high debt levels and staff costs, challenges amid the global pandemic, mental health staff shortages and decline in demand from cash-strapped consumers have weighed on its bottom line.

Sources believe that Brookfield is working on a recapitalisation plan of its own because it sees the chance to buy Healthscope a once-in-a-lifetime opportunity to gain control of one of the country’s most valuable healthcare operators.

It would also offer Brookfield more control over the future of who owns the business, considered important for the country’s healthcare system, because Brookfield could have a say in selecting the right owner for the operation.