Massive HCA dividend: What does it mean?

Nashville, Tenn.-based hospital chain HCA Inc. will distribute a $1.75 billion dividend to company stockholders and vested option holders, including the private equity firms KKR, Bain Capital and Merrill Lynch Private Equity. Many industry observers believe that the now-private firm could soon go public again with an initial public offering (IPO), so the payout has caught some by surprise, reports the Tennessean.

HCA will pay the dividend distribution using its existing asset-based and general revolving credit facilities and cash on hand, so some analysts think the payment might signal confidence in the company's cash flow. The company wanted to achieve a five times leverage ratio within five years of the buyout that took it private in 2006, and post-dividend, HCA will remain in that range, notes Whit Mayo, an analyst with Robert W. Baird & Co.

However, some analysts believe the payout could indicate that an IPO is off the table and that the company's backers are looking to cash in before HCA's financial outlook dims further due to recessionary pressures. HCA would have to address questions about the dividend payment in the event of an IPO, they add.

HCA is not alone in making such payouts. Fellow Tennessee hospital chains Iasis Healthcare and Vanguard Health Systems have also made significant dividend payments recently, says the Tennessean.

For more information:
- read this Tennessean article