US Oncology is the largest network of cancer treatment and research centers, with over 850 affiliated physicians. The company provides care to about a half million cancer patients per year.
Back in March 2004, the company went private in a $1.7 billion deal. The buyer was Welsh, Carson, Anderson & Stowe, which is a top private equity firm.
Since then, US Oncology has been producing lots of cash flows. For example, in 2006, EBITDA was $250 million.
Well, interestingly enough, Welsh Carson has been sucking out as much cash as possible. There have already been two dividend payouts: $250 million in 2005 and $190 million in 2006.
Now, it looks like Welsh Carson is going to take out even more cash – perhaps as much as $400 million.
Basically, the big help will come from borrowing money. In this case, US Oncology will issue notes that have a payment-in-kind (PIK) toggle. This means that if the company has problems paying its debt, it can instead pay interest in the form of more notes.
Yes, it appears that Welsh Carson is stretching the company. But, then again (according to a report in TheDeal, which is paid publication), the firm will have reaped about $430 million from its $303 initial investment – and still have a 64% ownership of common stock and 81.5% of preferred stock.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
