Universal Health (NYSE:UHS) Services, Inc. (NYSE:UHS) has successfully issued $1 billion in senior secured notes, split evenly between two tranches with varying maturity dates, as revealed in the company's recent SEC Form 8-K filing.
The first tranche consists of $500 million 4.625% notes due in 2029, and the second comprises $500 million 5.050% notes maturing in 2034. The issuance, completed on September 26, 2024, is backed by the company's subsidiary guarantors and secured by a first-priority lien on certain assets.
The notes are registered under the Securities Act of 1933, following a registration statement and prospectus supplement filed with the SEC in mid-September 2024. Interest for both note tranches will be paid semi-annually, starting April 15, 2025. The notes and their guarantees are secured by assets owned or acquired by Universal Health Services and its subsidiary guarantors, excluding real property and certain other assets.
The note guarantees can be released if the notes achieve investment-grade ratings and other conditions are met, such as the absence of defaults and the release of guarantees and liens on other obligations. As of the issuance date, the notes have received investment-grade ratings from Moody's (NYSE:MCO) and S&P, but the collateral release conditions have not been fully satisfied.
The notes are senior to any future subordinated debt and rank equally with other senior indebtedness. They are also structurally subordinated to the obligations of the issuer's non-guarantor subsidiaries. If unsecured guarantors are added in the future, their guarantees will be senior unsecured obligations.
Universal Health Services also amended its credit agreement on the same date, replacing existing credit facilities with a new $1.3 billion revolving credit facility and a $1.2 billion term loan facility, both maturing on September 26, 2029. The amendment includes provisions for initial borrowings under the new term loan facility, which, along with the proceeds from the note issuance, were used to repay outstanding debts under the previous credit agreement, including accrued interest and associated fees.
In other recent news, Universal Health Services is facing significant legal challenges with two of its subsidiaries, Cumberland Hospital for Children and Adolescents, and Pavilion Behavioral Health System, both found liable in lawsuits totaling $895 million in damages.
The company is currently evaluating all legal options, including appeals. Additionally, Universal Health Services intends to offer senior secured notes, with the specifics to be determined based on prevailing market conditions. The proceeds from the sale are earmarked for the repayment of certain amounts currently due under the company's tranche A term loan facility.
Several financial firms have adjusted their outlooks on Universal Health Services. RBC Capital Markets and Baird have increased their price targets to $222 and $274 respectively. Mizuho Securities and TD Cowen also raised their price targets, citing the company's strong earnings growth.
BofA Securities increased its price target to $235, noting potential additional supplemental payments pending approval in Tennessee and the District of Columbia. Lastly, UBS upgraded Universal Health Services, citing a positive outlook on the company's earnings potential, particularly in its behavioral health services.
InvestingPro Insights
Universal Health Services' recent $1 billion note issuance and credit agreement amendment align with the company's strong financial position, as highlighted by several InvestingPro metrics and tips. The company's market capitalization stands at $15.28 billion, reflecting its significant presence in the healthcare sector.
An InvestingPro Tip notes that UHS has been "aggressively buying back shares," which, coupled with the new debt issuance, suggests a strategic approach to capital management. This is further supported by the company's solid financial performance, with a revenue of $15.02 billion in the last twelve months as of Q2 2024, representing a growth of 8.83%.
The company's profitability is underscored by its P/E ratio of 16.45, which an InvestingPro Tip indicates is "low relative to near-term earnings growth." This suggests that UHS may be undervalued considering its growth prospects. Additionally, UHS has maintained dividend payments for 22 consecutive years, demonstrating a commitment to shareholder returns alongside its debt management strategy.
InvestingPro offers 11 additional tips for UHS, providing investors with a comprehensive analysis of the company's financial health and market position. To access these insights and more detailed financial metrics, consider exploring the full range of data available on InvestingPro.
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