Centene (CNC) Offers Senior Unsecured Notes Valued $2.2B
Centene Corporation CNC recently announced the pricing of $2.2 billion aggregate principal amount of senior unsecured notes.
The notes carry an interest rate of 3.00% p.a. and are scheduled to mature on 2030. Subject to customary closing conditions, the notes offering is likely to be completed on or around 7th of next month.
At first, Centene plans to utilize the net proceeds coupled with cash on hand for redeeming the entire outstanding 4.75% Senior Notes due 2022 and 5.25% Senior Notes due 2025. Through this offering, the healthcare provider also intends to redeem the entire outstanding 5.25% Senior Notes due 2025 of WellCare Health Plans, which is a wholly-owned unit of Centene.
Moreover, the company intends to redeem the abovementioned senior notes along with their premiums, accrued interest, and costs and expenses. However, the net proceeds may be put to temporary use for general corporate purposes.
In fact, the company has been showing prudence by issuing senior notes amid a low interest rate environment to procure funds and enhance financial flexibility without affecting liquidity. Case in point, in February of this year, the company had priced $2 billion 3.375% senior notes scheduled to mature on 2030 and intends to utilize the proceeds for redeeming the entire outstanding 4.75% Senior Notes due 2022 and 6.125% Senior Notes due 2024.
By capitalizing on the low interest rate environment triggered by the COVID-19 pandemic, the company is attempting to reduce its interest burden, thus facilitating margin expansion.
Shares of this Zacks Rank #3 (Hold) healthcare provider insurer have gained 21.2% in a year compared with the industry’s growth of 18.6%.
However, with the new issuance, interest expense that surged 83.5% in the first half of 2020, will escalate further. But we still believe that the company by virtue of its operational efficiency is in a strong position to clear debts, which should sustain the stock’s creditworthiness.
It is worth noting that Centene has maintained sufficient cash reserves for preserving the company’s liquidity amid the pandemic-induced market volatilities. As of Jun 30, 2020, the company’s cash and cash equivalents increased 5.6% to $12.8 billion from 2019 end level.
Furthermore, strong cash balance implies that cash reserves available are sufficient for servicing debt obligations, which however, increased 22.5% from 2019 end. Nevertheless, the company’s leverage has been improving. This is further substantiated by its total debt to total capital of 40% at the second-quarter end, which improved 1200 basis points (bps) from 2019 end.
Its times interest earned ratio of 5.3x also remained flat at the second quarter end from 2019 end. This reflects the company’s sound capabilities to meet current obligations in the near future without any difficulties.
Lastly, it’s worth mentioning that Centene’s ability to generate robust cash flows bode well as it can be utilized for undertaking not only shareholding-friendly moves via buybacks but also for the purpose of debt repayments.
This month itself, two other stocks in the medical space have announced issuance of new notes similar to Centene’s latest move. Universal Health Services, Inc. UHS announced the pricing of $800 million aggregate principal amount of senior secured notes. The notes carry an interest rate of 2.650% and are scheduled to mature on Oct 15, 2030. Also, Tenet Healthcare Corporation THC issued 6.125% $2.5 billion aggregate principal amount of senior notes unsecured notes due Oct 1, 2028.
A Stock to Consider
A better-ranked stock in the medical space includes Select Medical Holdings Corporation SEM, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Select Medical has a trailing four-quarter earnings surprise of 212.61%, on average.
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