NEW YORK ( TheStreet) -- Investors in HCA (HCA) have more reasons to flee the stock besides Monday's New York Times report that cardiologists at the private-equity-backed hospital chain may have performed hundreds of unnecessary heart procedures.
After its $4 billion initial public offering, the largest in the U.S. in 2011, HCA is still being run as if it were a private equity investment with much of the spoils going to insiders at the peril of ordinary investors.
The stunning reports of improper medical decisions raised serious questions about the company, causing the shares to gyrate. In second-quarter earnings released Monday, HCA disclosed that the U.S. attorney's office in Miami is looking into cardiology practices at 10 of its hospitals.
Reactions to the report even tied HCA's alleged cardiology practices to an acrimonious battle over presumptive Republican presidential candidate Mitt Romney's years running private equity firm Bain Capital, a co-owner of HCA prior to its 2011 IPO.But even before Monday's revelations, serious risks existed around HCA, its management and financial health. For example, HCA carries a staggering $27 billion debt load, a remnant from its 2006 buyout by Bain and KKR (KKR). That gives the company a shareholder equity deficit of roughly $7 billion, the third most of any U.S. company following bankrupt American Airlines and Clear Channel Outdoor's (CCO) parent, CC Media Holdings (CCMO), according to data compiled by Bloomberg. After HCA's March 2011 IPO, Bain and KKR remain minority investors in the company, holding near 20% stakes, respectively. However, their sway appears to be controlling. Instead of paring its titanic debt load using an impressive profit of nearly $2.5 billion -- and an even more notable $4 billion in free cash flow earned in 2011 -- management appears happy to maintain debts hovering near $30 billion. The debt mostly comes due between 2019 and 2022, after its former private equity owners used spongy markets to refinance tens of billions in buyout debt. In fact, in order to pay a special $2 a share dividend this February, HCA took on more debt, issuing $1.35 billion in junk-rated bonds to finance the payment to shareholders, including its former private equity owners.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV