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Community Health (CYH) Unit Announces Junior Note Offerings

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Community Health Systems, Inc. (CYH - Free Report) recently announced that its wholly owned unit Community Health Systems, Inc. (CHS) intends to offer $750 million aggregate principal amount of Junior-Priority Secured Notes.
Subject to certain closing conditions, the notes are scheduled to mature in 2029.

This hospital company plans to utilize the net proceeds from this offering along with cash to buy back and/or redeem $750 million aggregate principal sum of its remaining Junior-Priority Secured Notes due 2023. It also has plans to pay related fees and costs.

CHS has also priced an offering of $1.775 billion aggregate principal amount of Junior-Priority Secured Notes. These notes carry an interest rate of 6.875% and are due 2029. The sale of these notes is anticipated to be consummated on or about Feb 2, 2021.

Notably, the amount of the Notes Offering in this tranche was enhanced by $1.025 billion aggregate principal amount, subsequent to the initial announcement of the Notes Offering. With the proceeds from this offering, the company aims to repurchase and/or redeem all its outstanding Junior-Priority Secured Notes due 2023 as well as pay related fees and expenses.

In fact, the company is steadily issuing senior notes to enhance its financial flexibility without affecting its liquidity position, which only proves its financial prudence. As a case in point, last month, the company offered notes worth $2.8 billion in two tranches. CHS priced offerings of $1.9 billion and $0.9 billion worth of senior notes. The notes that are scheduled to mature in 2027 carry an interest rate of 5.625% and the ones with an interest rate of 6% will expire in 2029. Subject to customary closing conditions, the notes offering is likely to be completed on or about Dec 28, 2020. By leveraging the low interest rate environment, triggered by the COVID-19 pandemic, the company is attempting to reduce its interest burden, thereby aiding margin expansion.

Net debt of the company represents 101.4% (compared with the sequential level of 118%) of its capital, higher than the industry’s average of 74.5%. As of Sep 30, 2020, it has cash and cash equivalents worth $1.8 million and $654 million of additional borrowing capacity under its ABL (Asset-based Lending). The company also expects its divestitures to add to its liquidity. However, it extended its notes, which means that it doesn’t have any near-term maturities.

Although its high leverage ratio raises its financial risk, we hope that the company has sufficient capabilities to meet its current obligations.

Zacks Rank and Price Performance

Shares of this currently Zacks Rank #4 (Sell) company have surged 150.4% in a year’s time, outperforming its industry’s growth of 11.4%.


You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, other companies in the same space including Tenet Healthcare Corporation (THC - Free Report) , Acadia Healthcare Company Inc. (ACHC - Free Report) and HCA Healthcare Inc. (HCA - Free Report) have also rallied 31.9%, 57.9% and 12.8%, respectively, in the same time frame.

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