Post by dnr08 on Nov 18, 2019 16:35:53 GMT
LabCorp is bringing $800 million-$1 billion in a debt deal today, including 5 and 10 year tranches. It's rated Baa2/BBB, stable outlook by both services. It's a "leverage neutral issuance", but investors should "expect M&A ahead." I'm quoting from my firm's credit analyst's comments of this deal. Here's is his summary snapshot of the credit, which includes summary commentary on the business, and MANAGEMENT. It should not be difficult to understand that credible management receives meaningful and broad equity and debt sponsorship. Unfortunately for Opko, the opposite is also true. The synopsis starts with an opinion on the value of the debt pieces....where the analyst thinks the tranches should be issued vs the respective treasury benchmarks and still be a reasonable risk spread:
We would participate as tight as +87.5/5yr and +125/10yr… leaving at least a slight concession to LH’s par-adjusted curve, while LabCorp continues to look for acquisition opportunities and deal with Medicare/Medicaid reimbursement risk. Today marks LH’s 2nd return to the debt market since it brought $2.9bn in 2015 to fund its ~$6bn acquisition of Covance (closed Feb’15). At the time, EBITDA leverage peaked at 3.9x at close, and mgmt stated its intent to return leverage to 2.5x in the long-term, then a string of smaller M&A deals has extended the timeline of reaching targeted deleveraging, as the company brought another $1.2bn approximately 18mos later in Aug’17 (to fund the cash acquisition of Chiltern for $1.2bn which closed in Sep’17), and appears to have changed to a target leverage of ~low 3x since that time. For most recent acquisition, we note an $850mm term loan (due 2021) was issued in Jun’19, in order to finance the acquisition of the nonclinical contract research services business of Envigo Int’l for $485mm, as well as GCP. As it stands today, we note (positively) that this acquisitive path has left LabCorp increasingly well diversified, with 61% of revenues from LabCorp’s legacy diagnostics business (and still one of the top 2 players there with DGX, in a business with considerable size/scale advantages), and now 39% of revenues coming from LH’s Covance drug development (CRO) side, adding both business and customer diversity. We note Adam Schechter took over as new CEO this month, who was previously lead independent director of LH’s BoD, but with a 10yr background at Merck, which should provide additional insight and credibility on the drug development side. LabCorp’s natural comp is peer Quest Diagnostics [DGX:Baa2/BBB+/BBB|2.6x gross lvg, 2.3x net lvg] … we believe LH is fairly valued 5-10bps behind DGX’s adjusted curve, owing mainly to the +1/2 turn more leverage at LH.
Only in my dreams is there a "lead independent director" of OPK's BOD.......
We would participate as tight as +87.5/5yr and +125/10yr… leaving at least a slight concession to LH’s par-adjusted curve, while LabCorp continues to look for acquisition opportunities and deal with Medicare/Medicaid reimbursement risk. Today marks LH’s 2nd return to the debt market since it brought $2.9bn in 2015 to fund its ~$6bn acquisition of Covance (closed Feb’15). At the time, EBITDA leverage peaked at 3.9x at close, and mgmt stated its intent to return leverage to 2.5x in the long-term, then a string of smaller M&A deals has extended the timeline of reaching targeted deleveraging, as the company brought another $1.2bn approximately 18mos later in Aug’17 (to fund the cash acquisition of Chiltern for $1.2bn which closed in Sep’17), and appears to have changed to a target leverage of ~low 3x since that time. For most recent acquisition, we note an $850mm term loan (due 2021) was issued in Jun’19, in order to finance the acquisition of the nonclinical contract research services business of Envigo Int’l for $485mm, as well as GCP. As it stands today, we note (positively) that this acquisitive path has left LabCorp increasingly well diversified, with 61% of revenues from LabCorp’s legacy diagnostics business (and still one of the top 2 players there with DGX, in a business with considerable size/scale advantages), and now 39% of revenues coming from LH’s Covance drug development (CRO) side, adding both business and customer diversity. We note Adam Schechter took over as new CEO this month, who was previously lead independent director of LH’s BoD, but with a 10yr background at Merck, which should provide additional insight and credibility on the drug development side. LabCorp’s natural comp is peer Quest Diagnostics [DGX:Baa2/BBB+/BBB|2.6x gross lvg, 2.3x net lvg] … we believe LH is fairly valued 5-10bps behind DGX’s adjusted curve, owing mainly to the +1/2 turn more leverage at LH.
Only in my dreams is there a "lead independent director" of OPK's BOD.......