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Encompass Health Offers Senior Unsecured Notes Worth $400M

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Encompass Health Corporation (EHC - Free Report) recently announced the pricing of $400 million aggregate principal amount of senior unsecured notes.

The notes carry an interest rate of 4.625% and are scheduled to mature on 2031. Subject to customary closing conditions, the notes offering is likely to be completed on Oct 5.

It is to be noted that these notes will fetch interest on a semi-annual basis. The interest will be paid by the company in arrears on Apr 1 and Oct 1 of each year. Notably, the very first interest will be paid on Apr 1 of next year.

Moreover, Encompass Health plans to utilize the net proceeds coupled with cash on hand for redeeming the entire 5.75% Senior Notes at par, which is set to mature on 2022.

In fact, the company has been showing prudence by issuing senior notes amid a low interest rate environment triggered by the COVID-19 pandemic. The notes offering intends to procure funds and enhance financial flexibility without affecting liquidity. Case in point, in May of this year, the company had priced $300 million 4.50% senior notes scheduled to mature on 2028 and another $300 million 4.75% senior notes set to mature on 2030 for not only repaying borrowings under its revolving credit facility but also for other corporate purposes.

By capitalizing on the low interest rate environment, the company is attempting to bring down its interest burden, thus facilitating margin expansion.

However, with the new issuance, interest expense that rose 18.8% in the first half of 2020, will escalate. Nevertheless, we still believe that the company by virtue of its operational efficiency is in a strong position to clear debts, which should sustain the stock’s creditworthiness.

It is worth noting that Encompass Health has maintained sufficient cash reserves for preserving liquidity amid the pandemic-induced market volatilities. As of Jun 30, 2020, the company’s cash and cash equivalents soared 342% to $419 million from 2019 end level. The healthcare provider also has around $964 million available under its revolving credit facility at the second-quarter end.

Furthermore, strong cash balance implies that cash reserves available are sufficient for servicing debt obligations, which however, increased 17% from 2019 end.

Lastly, it’s worth mentioning that Encompass Health’s ability to generate robust cash flows bode well as it can be utilized for undertaking not only shareholder-friendly moves via dividend payments but also for debt repayments.

Last month, three other stocks in the medical space have announced issuance of new notes similar to Encompass Health’s latest move. Acadia Healthcare Company, Inc. (ACHC - Free Report) announced the pricing of $475 million aggregate principal amount of senior notes. The notes carry an interest rate of 5.000% and are scheduled to mature on Apr 15, 2029.

While Centene Corporation (CNC - Free Report) issued 3.00% $2.2 billion aggregate principal amount of senior unsecured notes due 2030, Universal Health Services, Inc. (UHS - Free Report) announced the pricing of 2.650% $800 million aggregate principal amount of senior secured notes due 2030.

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