HCA said to prepare $3 billion IPO

NEW YORK — HCA Inc., the hospital chain whose sale four years ago smashed the record for largest leveraged buyout, is preparing an initial public offering that may raise as much as $3 billion, said two people with knowledge of the matter.

HCA, which owns Wichita's Wesley Medical Center and is controlled by KKR & Co., Bain Capital, Bank of America and Tennessee's Frist family, plans to interview banks to underwrite the sale over the next few weeks, according to the people, who asked not to be identified because the information isn't public. The sale, slated for this year, may raise $2.5 billion to $3 billion, the people said.

The stock offering would be the biggest U.S. IPO in two years and would help HCA pay off debt, the people said. Private-equity firms spent $2 trillion, most of it borrowed, to buy companies ranging from Hilton Hotels to Clear Channel Communications in the leveraged-buyout boom that ended in 2007 and are now seeking to reduce that debt before it matures.

U.S. IPO investors have been leery of companies backed by private equity this year. In the biggest offering so far, Bain's Sensata Technologies Holding sold $569 million of shares last month at the low end of its estimated price range. In February, Blackstone Group's Graham Packaging Co. and CCMP Capital Advisors' Generac Holdings were forced to cut the size of their offerings.

A $2.5 billion IPO would be the largest in the U.S. since March 2008, when Visa raised almost $20 billion. HCA would be the biggest IPO of a private-equity backed company in the U.S. since at least 2000, according to Greenwich, Conn.-based Renaissance Capital, which has followed IPOs since 1991.

HCA's owners put up about $5.3 billion to buy the company, according to a regulatory filing, funding the rest of the $33 billion buyout with loans from banks including Bank of America, Merrill Lynch, JPMorgan Chase and Citigroup. The stock offering would cut the company's debt load rather than allow the owners to reduce their stakes, said the people.

The hospital chain's purchase in 2006 shattered the record for the largest leveraged buyout, held since 1989 by KKR's acquisition of RJR Nabisco. HCA's record was quickly eclipsed by Blackstone's acquisition of Equity Office Properties Trust and again by the 2007 takeover of Energy Future Holdings Corp., by KKR and TPG, the current record holder at $43 billion including debt.

Later that year, the global credit contraction cut off the supply of loans necessary to arrange the largest LBOs. A takeover of a public company of more than $6 billion including debt hasn't been announced since 2007.

HCA, the largest U.S. hospital operator, had about $25.7 billion of debt as of Dec. 31, about 4.8 times its earnings before interest, taxes, depreciation and amortization, even before HCA's owners tapped credit lines in January to pay themselves a $1.75 billion dividend. Tenet Healthcare Corp.'s ratio was 4.4 and Lifepoint Hospitals' was 2.85 at year- end, according to data compiled by Bloomberg.

Health-care companies have fared better than the average private-equity investment during the economic decline. KKR said in February that its holding in the company had gained as much as 90 percent in value as of Dec. 31, while stakes in Energy Future Holdings Corp. and First Data Corp. were worth less than their initial cost.

Hospitals will probably be "net winners" in the health-care legislation President Barack Obama signed into law on March 23, said Adam Feinstein, a New York-based analyst at Barclays Capital, in a March 26 note to investors. HCA, Dallas-based Tenet and Brentwood, Tenn.-based LifePoint may gain because the legislation provides for medical coverage for millions of uninsured patients, reducing hospitals' losses from providing charity care to the poor and uncollectible bills.

HCA has 163 hospitals and 105 outpatient-surgery clinics in 20 states and England, according to the company's Web site.

The company was founded in 1968, when Nashville physician Thomas Frist Sr., and his son, Thomas Frist Jr., and Jack Massey built a hospital there and formed Hospital Corp. of America. By 1987, the company had grown to operate 463 hospitals, according to the company's Web site. Thomas Frist Sr. is also the father of Bill Frist, a physician and the former Senate majority leader.

HCA went private in a $5.1 billion leveraged buyout in 1989, then went public again in 1992, according to the company Web site. In 1994, HCA merged with Louisville, Ky.-based Columbia Hospital Corp. In the mid-1990s the company, then called Columbia/HCA Healthcare Corp., operated 350 hospitals, 145 outpatient clinics and 550 home-care agencies, according to the company.