Life extension

Hospital operator HCA Inc. continues to set the tone for companies scrambling to avoid the wave of loan maturities set to crash upon the high-yield market between 2012 and 2014.

Earlier this month, the company asked the collateralized loan obligation funds that hold the bulk of its loans to allow it an open-ended amendment that would let it issue new debt, extend current loans or issue bonds to repay $10.5 billion in senior secured debt.

The Nashville company has no immediate plans to issue new debt, so the request is analogous to a shelf filing in the equity markets. There companies register planned public offerings in advance so they can avoid getting tangled up in regulatory red tape and come to market quickly when opportunities arise.

In this case, HCA is asking senior lenders to give it carte-blanche approval to manage its debt load without having to go back each time for amendments to its existing loan contracts.

As an indication of HCA's confidence in investors' willingness to cooperate with its debt-management efforts, the company's request contained no limits on HCA's ability to extend loans and didn't offer investors any fee for approval.

But the company may have been overconfident. According to Standard & Poor's Leveraged Commentary & Data analyst Chris Donnelly, HCA was looking for consent from the lenders by June 13 but was soundly rebuffed by CLO managers, who were unwilling to give HCA an open-ended and essentially limitless amendment for nothing. Donnelly says the company has come back with a request that includes a 5-basis-point fee on the value of the loans that investors hold, as well as giving them "most favored nation" status, meaning they will receive the same rights given to other investors in any subsequent transaction.

This request is the latest debt-management effort by HCA, which Kohlberg, Kravis, Roberts & Co., Bain Capital LLC and Merrill Lynch Global Private Equity own. Earlier this year, HCA received approval from lenders to repay bank debt by issuing secured bonds and exploited that freedom with a $1.5 billion bond offering that whittled down the $12 billion in bank debt used to fund its $33 billion buyout in late 2006.

Will the CLOs go along with HCA's plan?

In a more normal credit environment, it would seem unlikely that loan investors would give up their ability to control a borrower's debt-management strategy or grant a company virtually unfettered license to extend maturities without discussing the extension or potential pricing. However, S&P's Donnelly feels that in this stressful climate, HCA will likely get what it wants after granting concessions to investors who don't want to be insulted by terms that are too aggressive.

"It's in everybody's best interest to chip away at the maturity towers of 2012 to 2014," Donnelly says. He's referring to the anticipated $430 billion in loans scheduled to mature between those years, which, as of now, have no obvious path to either refinancing or being repaid in full. This maturity wave is threatening lenders, investors and borrowers in the market with the prospect of large-scale and damaging losses caused by default. It is also forcing companies to try to avoid having to come to the market with refinancing requests during that period by either paying off debt now or staggering their maturities.

Donnelly says CLOs have a strong incentive to approve HCA's request because of the size of its loans and the prospect that they might be repaid early if HCA issues more bonds to reduce its senior debt. The company likely won't need to ask for permission to do this again, given that investors already gave it before its $1.5 billion offering.

Many of the CLO funds, which made up the bulk of investment in the leveraged loan market in the credit boom, don't want to be sitting on low-yielding cash and would be willing to allow HCA to extend maturities on existing debt to avoid early repayment.