HCA Gives Shareholders Chest Pain: Street Whispers

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.

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