Magazine article American Banker

Chemical and Citibank Marketing $235 Million Republic Health Credit

Magazine article American Banker

Chemical and Citibank Marketing $235 Million Republic Health Credit

Article excerpt

Chemical and Citibank Marketing $235 Million Republic Health Credit

Chemical Bank and Citibank are marketing a new $235 million credit for Republic Health Corp., a Dallas-based company that emerged from bankruptcy last year.

The new loans are part of a major recapitalization, which will result in a dramatic deleveraging of the company's balance sheet.

The loans, along with $106 million of fresh equity, will be used to refinance $93 million of existing bank debt owed to Citibank, and to retire $228 million face amount of subordinated debentures at a discount.

Following the recapitalization, the company's debt-to-equity ratio will shrink to less than 1.3 to 1, from 7.7 to 1 currently.

"We're moving from a highly leveraged company to a much, much less leveraged one," said Brian Marsal, president of Republic Health, and a partner in Alvarez and Marsal Inc., a turnaround firm which guided Republic out of bankruptcy.

Despite the deleveraging, Republic agreed to pay a steep rate on the new loans, amounting to 300 basis points over the London interbank offered rate.

Republic needed the loans in a hurry so it could close on the repurchase of the subordinated debt. Also, banks are generally leery of lending to the heavily regulated healthcare industry, which is subject to the whims of government reimbursement policies for patients covered by Medicare and Medicaid.

New Sources of Equity

Most of the subordinated debt that is being repurchased by Republic is held by Pacific Asset Holdings. As part of the deal, Pacific Asset is injecting $51 million of new equity into Republic. …

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