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Healthways Inc. (HWAY - Analyst Report) recently announced the pricing of private offering of cash convertible senior notes worth $125 million. The company expects to cease the offer on Jul 8, 2013, subject to standard closing conditions.

The senior notes will carry an interest rate of 1.50% per annum payable every six months on Jan 1 and Jul 1. According to the company, initial purchasers of the notes will have an opportunity to purchase an extra $25 million aggregate principal amount of the notes.

The notes are set to mature on Jul 1, 2018. In the meantime, initial purchasers will have the option to convert the bond into cash under certain circumstances. As per the transaction, 51.3769 shares of common stock per $1,000 principal amount or $19.46 per share of Healthways common stock is the predefined conversion rate for the notes. This reflects a premium of roughly 20% on the closing price of the stock on Jul 1, 2013.

Healthways expects to generate net proceeds (after deducting issue-related expenses, initial purchasers’ discounts and commissions) of about $119.7 million from the senior note offering. If the initial purchasers purchase additional notes in full at their discretion, the company estimates the raised amount to be approximately $143.9 million.

Healthways intends that the raised amount will be used to redeem its outstanding debt and recompense the costs of cash convertible note hedge transactions associated with the senior note offering. Net proceeds from sale of additional notes will be used for general corporate purpose that includes financing strategic takeovers, collaborations and other business expansion projects.

The senior note offering will enable Healthways to wend a part of its debt at lower rates. As a result, the company will reduce its interest expense going forward, benefiting from the current favorable interest rate environment.

In the first quarter, the company’s loss per share of 12 cents was wider than the loss of 8 cents in the prior-year quarter. The interest expense for Healthways was $3.3 million in the most recent quarter compared with $3.2 million in the year-ago quarter. A reduction in interest expense should improve the company’s staggering bottom line.

Currently, Healthways’ debt-to-capital ratio is 49.3%, which will increase after the issuance of these notes. Given the company’s low cash balance, we believe the issuance will enable it to capitalize on investment opportunities and make strategic acquisitions, further improving its growth prospects. Additionally, we believe the senior notes offering will bring down its cost of capital, thus strengthening the company’s balance sheet and supporting its future growth.

Currently, Healthways carries a Zacks Rank #3 (Hold). Other healthcare stocks worth a look are Covance Inc. (CVD - Analyst Report), Omnicare Inc. (OCR - Snapshot Report) and PAREXEL International Corporation (PRXL - Snapshot Report). These stocks carry a Zacks Rank #2 (Buy).

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