Private equity checks out Healthscope, as Brookfield confirms sale

Healthscope has agreed a deal with lenders to waive interest payments until May.

Brookfield will call for indicative bids for Healthscope at the end of May, say sources, and Pacific Equity Partner is tipped to line up for the business along with Bain Capital and HMC Capital.

But the North American firm’s move to place Australia’s second largest private hospital operator up for sale could be a market testing exercise to determine how much the North American private equity firm could net for the trouble healthcare provider, say sources.

Healthscope on Tuesday confirmed DataRoom reports that it was launching a sale process after striking a deal with its lenders that will mean its interest payments will be suspended until May.

After that time and once Brookfield has offers through the door, it can determine what the best way forward is, and lenders can decide at that point whether they are prepared to refinance the business or offload the loans to buyers at a discount, or place the business in receivership.

PEP, which owns Australian operator Healthe Care, is taking a look at Healthscope, while the Macquarie Capital-advised HMC Capital will bid, as likely will Bain Capital which has been assembling a team to weigh an investment.

Market experts believe that local hospital operators would need to form consortiums to bid for the business, and some believe it is more likely a private equity firm from offshore or a global hospital operator would show interest.

Bupa, which operates hospitals in Europe, has been around the hoop assessing a possible role in a buyout.

And it is not necessarily a given that Brookfield sells it; an alternative outcome is that it retains the healthcare provider and recapitalises it, or allows lenders to sell debt to buyers at a discount and they then take control.

HMC Capital is run by David Di Pilla, who has confirmed he wanted to buy Healthscope, but his challenge is HMC manages a trust that is one of Healthscope’s landlords – HealthCo REIT – presenting conflicts of interest.

He would also likely need to raise funds to finance a deal, and he has been known to have indicated an interest in buying debt between 15c and 40c in the dollar at the time there is strong demand from other groups out of the United States to buy the loans.

Meanwhile, Healthscope has also reached a deal with Northwest Healthcare Properties REIT – one of its largest landlords – to defer the payment of rents, and it continued to be in talks with its other landlord, HMC Capital.

“Healthscope has entered into short-term forbearance arrangements with the requisite majority of its senior lenders. The arrangements are in place until May,” Healthscope said.

“These arrangements provide time and enhanced liquidity for Healthscope to focus on

agreeing to a longer-term solution for the business with its key stakeholders.”

Healthscope, advised by Moelis, said in a statement that it was preparing for a “potential” sale of the business and was concurrently engaged in broader restructure discussions with its key stakeholders.

It said that an agreed deferral with a key landlord, Northwest Healthcare Properties REIT, was short term and noted that Northwest had been constructive in the process.

“Having achieved these milestones we will also re-engage with the HMC managed entities

and invite HMC to participate in discussions on longer-term solutions that ensure relevant

hospitals can sustainably operate,” it said.

While HMC and potential partners were also said to be considering an offer for Healthscope,

Healthscope had not received any proposal from HMC nor any other potential partner, it said in a statement.

Brookfield bought Healthscope in 2019 for $4.4bn and sold its properties for $2bn, but it has been buckling under its $1.6bn of debt, rent payments, higher costs, and has been in dispute with healthcare funds over reimbursement of services payments, with devices pricing a particular issue.

Sources say that the company needs more funding to improve the business and boost its earnings.