Business Context and Reporting Period
Company: DaVita Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 12, 2019
Principal Event: Entry into a new $5.5 billion senior secured credit agreement and termination of the prior credit facility.
Key Financial Metrics and Debt Structure
New Credit Agreement ($5.5 Billion Total):
- Revolving Credit Facility: $1.0 billion (5-year term; undrawn at closing).
- Term Loan A Facility: $1.75 billion (5-year term; undrawn at closing; delayed draw feature).
- Term Loan B Facility: $2.75 billion (7-year term; fully drawn at closing).
Interest Rates (Initial):
- Pro-rata Facilities (Term A & Revolver): LIBOR + 150 bps or Base Rate + 50 bps.
- Term Loan B: LIBOR + 225 bps or Base Rate + 125 bps.
- Commitment Fee (Undrawn Revolver): Initially 0.25% per annum.
Prior Credit Agreement (Terminated):
- Outstanding Revolver: $650 million.
- Outstanding Term Loan B: Approximately $501.6 million.
- Interest Rates: LIBOR + 200 bps (Revolver) and LIBOR + 275 bps (Term B).
Senior Notes Redemption:
- Instrument: 5.75% Senior Notes due 2022.
- Principal Amount: $1.25 billion.
- Redemption Price: 100.958% of principal plus accrued interest.
- Redemption Date: September 13, 2019.
Material Changes Versus Prior Period
- Debt Refinancing: The Company replaced its 2014 credit agreement with a new $5.5 billion facility, increasing total available capacity and extending maturities.
- Interest Cost Reduction: The new agreement lowers the initial interest margin on the Term Loan B facility from 275 bps to 225 bps over LIBOR.
- Liquidity Deployment: Proceeds from the new Term Loan B ($2.75 billion) were used to repay the entire prior credit facility ($1.15 billion outstanding) and fund the redemption of $1.25 billion in Senior Notes.
- Covenant Structure: The new agreement imposes a maximum leverage ratio covenant of 5.00:1.00, with a step-down to 4.50:1.00 in future periods.
Guidance, Outlook, and Risks
Use of Proceeds: Funds are allocated to repay prior debt, redeem Senior Notes, pay transaction fees, and fund general corporate purposes including potential future share repurchases and acquisitions.
Amortization Schedule:
- Term Loan A: Quarterly amortization starting at 2.5% per annum in Year 1, increasing to 10% in Year 5.
- Term Loan B: Quarterly amortization at 1.0% per annum.
Risks and Contingencies:
- Events of Default: Include payment defaults, covenant breaches, cross-defaults, bankruptcy, ERISA events, and loss of eligibility to participate in Medicare or Medicaid programs.
- Prepayment Penalties: Term Loan B is subject to a 1% prepayment premium if refinanced within 6 months of closing with debt yielding a lower effective rate.
- Forward-Looking Statements: The filing notes that actual results may differ due to risks outlined in the Company's Form 10-Q.
Investor Verification Checklist
- Verify the exact closing date and funding status of the $2.75 billion Term Loan B Facility.
- Confirm the execution of the $1.25 billion Senior Notes redemption on September 13, 2019.
- Review the Company's current leverage ratio to ensure compliance with the new 5.00:1.00 covenant.
- Monitor the Company's eligibility status for Medicare and Medicaid programs, as loss of eligibility constitutes an event of default.
- Assess the impact of the new amortization schedule on future quarterly cash flow requirements.