HMC Capital must lift its offer to lenders to secure Healthscope

Healthscope’s landlords are first in the queue to be paid if the company collapses.

David Di Pilla’s HMC Capital may need to pay 40c in the dollar or $640m to Healthscope’s lenders, who are owed $1.6bn, to gain control of the business, as the future of the private hospital operator hangs in the balance.

There is speculation in the market that Healthscope’s lenders have rebuffed a proposition for HMC Capital to pay 15c-20c in the dollar for the loans, but an offer between 20c and 40c may be better received.

To put it into context, Oaktree Capital Management offered 65c in the dollar for Star Entertainment’s senior debt. While distressed, the casino operator owns its own real estate, which makes it valuable.

Healthscope has an interest payment due on March 12 when the company is expected to breach its debt covenant, triggering a clause that enables its syndicate of about 25 financiers to trade their debt.

HMC Capital has hired Macquarie Capital in a quest to buy the embattled Healthscope to protect the rents of its own listed satellite HealthCo, which is one of Healthscope’s main landlords, but also to provide sustainable future for the country’s second-largest private hospital operator.

HMC Capital’s plan is understood to involve buying the debt from lenders at a discount, then calling in the loans from owner Brookfield.

The listed HMC Capital would become the new owner with reduced debt obligations, putting it in a stronger position to pay its rents.

Healthscope’s landlords are first in the queue to be paid should the company collapse.

HMC Capital is talking to various parties about playing a role in a recapitalisation, including health insurer Bupa.

Private equity firm Bain Capital is believed to be waiting on the sidelines to see if it has a role to play once the company has fallen over.

On March 12, when senior debt payments are due, Healthscope is expected to breach its interest cover ratios, but a deal with lenders was being worked on over the weekend to give Healthscope a reprieve from paying interest until May.

One of the conditions may be that lenders have the right to trade debt.

It is understood that 70 per cent agreed of lenders to put the interest payment freeze in place for three months. They included Australia’s top four banks.

However, the remainder, probably offshore lenders, would then be eager to sell their loans after the March deadline.

Brookfield purchased Healthscope in 2019 for $4.4bn and on-sold its real estate for about $2bn.

While it is understood to have already got its money back on the investment, it is believed to think there is no money left in the business and it is taking a pragmatic approach to its future.

While buckling under a large debt pile, Healthscope, with 38 hospitals, is also wrestling with substantial staff cost increases.

Industry observers say healthcare workers working for aged care providers and the NDIS are getting better wage deals after the government provided more funding, and that is affecting the private hospital sector.

Brookfield has had restructuring advisers working on solutions for Healthscope, including Moelis and FTI Consulting, with lenders advised by Houlihan Lokey and McGrath Nicol.