) recently announced the pricing of private offering of cash
convertible senior notes worth $125 million. The company expects
to cease the offer on Jul 8, 2013, subject to standard closing
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The senior notes will carry an interest rate of 1.50% per annum
payable every six months on Jan 1 and Jul 1. According to the
company, initial purchasers of the notes will have an opportunity
to purchase an extra $25 million aggregate principal amount of
The notes are set to mature on Jul 1, 2018. In the meantime,
initial purchasers will have the option to convert the bond into
cash under certain circumstances. As per the transaction, 51.3769
shares of common stock per $1,000 principal amount or $19.46 per
share of Healthways common stock is the predefined conversion
rate for the notes. This reflects a premium of roughly 20% on the
closing price of the stock on Jul 1, 2013.
Healthways expects to generate net proceeds (after deducting
issue-related expenses, initial purchasers' discounts and
commissions) of about $119.7 million from the senior note
offering. If the initial purchasers purchase additional notes in
full at their discretion, the company estimates the raised amount
to be approximately $143.9 million.
Healthways intends that the raised amount will be used to redeem
its outstanding debt and recompense the costs of cash convertible
note hedge transactions associated with the senior note offering.
Net proceeds from sale of additional notes will be used for
general corporate purpose that includes financing strategic
takeovers, collaborations and other business expansion projects.
The senior note offering will enable Healthways to wend a part of
its debt at lower rates. As a result, the company will reduce its
interest expense going forward, benefiting from the current
favorable interest rate environment.
In the first quarter, the company's loss per share of 12 cents
was wider than the loss of 8 cents in the prior-year quarter. The
interest expense for Healthways was $3.3 million in the most
recent quarter compared with $3.2 million in the year-ago
quarter. A reduction in interest expense should improve the
company's staggering bottom line.
Currently, Healthways' debt-to-capital ratio is 49.3%, which will
increase after the issuance of these notes. Given the company's
low cash balance, we believe the issuance will enable it to
capitalize on investment opportunities and make strategic
acquisitions, further improving its growth prospects.
Additionally, we believe the senior notes offering will bring
down its cost of capital, thus strengthening the company's
balance sheet and supporting its future growth.
Currently, Healthways carries a Zacks Rank #3 (Hold). Other
healthcare stocks worth a look are
PAREXEL International Corporation
). These stocks carry a Zacks Rank #2 (Buy).