DaVita Inc. (DVA) has planned to raise funds to refinance its existing senior secured credit facilities and outstanding bonds by issuing new secured and unsecured debt. In addition, DaVita has provided its third quarter and fiscal year 2010 guidance.
The board of directors of DaVita has authorized the refinance of its $1.8 billion of indebtedness under its existing senior secured credit facilities, $700 million of its 6 5/8% Senior Notes due 2013 and $850 million of its Senior Subordinated Notes due 2015.
DaVita is expected to utilize the funds for general corporate purposes and in financing potential acquisitions, share repurchases and other growth investments.
Concurrently, DaVita has projected its third quarter and fiscal year 2010 estimates. DaVita continues to expect its operating income for the third quarter to fall in the range of $254 million to $260 million and thereby its diluted EPS will likely range between $1.11 and $1.14. Further, DaVita expects its non-acquired treatment growth to be approximately 3.8% in the third quarter.
For 2010, DaVita has lowered its operating income guidance to a range of $985 million to $1,020 million from $970 million to $1.02 billion on the belief that the mix of treatments reimbursed by non-government payors, as a percentage of total treatments, has been falling consistently.
However, DaVita did not provide its operating income guidance for 2011 due to the ongoing concerns related to payor mix and the uncertainties of operating under the new Medicare bundled payment system.
The new U.S. Medicare system has plans for tightening payments for kidney dialysis treatment and initiated a new rule of linking payment for services to performance standards, in order to minimize costs and discourage doctors from over treating patients.
We believe that the transition to a bundled system will result in near-term earnings volatility for DaVita as providers search for cost offsets to mitigate lower reimbursement, which coupled with the headwinds from refinancing, will likely limit growth in the near term. Nonetheless, with $550 million of expected free cash flow, the potential for meaningful M&A and the longer-term benefits of the bundle, we believe downside from current levels is likely limited.
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